What can we expect from the Budget?
The Chancellor has promised a ‘bold’ budget. Like many in the pensions industry, we are debating which of the numerous rumours are likely to come to fruition on the 22nd November.
Most of the rumours stem from recent updates to the 2015 government consultation, ‘Strengthening the incentive to save’ which until now at least, has seen no major changes implemented.
One area for discussion is tax relief. Currently, higher tax rate earners get relief at 40% while basic rate earners have their tax relief set at 20%. The idea of introducing a flat rate on pensions relief could be an option for Mr Hammond. The figure being discussed in the pensions industry is a flat rate of 33%. Some are suggesting the figure could even be 20% – a bold move indeed and essentially quite a drastic change.
However, given there is still much work to be done on Brexit, we feel this could prove too complex to administer and would not be a welcome addition to the government’s ‘to do’ list.
The Tories have a lot of ground to make up with younger voters, and it’s likely the Chancellor could be looking for ways to persuade them. Should he decide to cut National Insurance Contributions for younger earners, he will need to fill the financial hole from elsewhere.
One relatively easy win, and also highlighted in the Paper, could be for the Treasury to look at decreasing the annual pension contribution allowance – certainly we believe this is one of his most likely targets.
The current £40,000 limit could well be reduced and in our experience, many savers remain confused about the rules which, along with the tapered reduction allowance, can be difficult to understand. Therefore, politically this could be seen as quite an easy target – if you don’t know what you have, you won’t miss it when it’s gone! It’s also going to be a quick and relatively easy reform to administer.
Whatever happens on the 22nd we are pretty confident that pensions will as usual be in the Chancellor’s sights as they are always the low hanging fruit – an easy target for Chancellors of all political persuasion.