Published by Malcolm McLean on
There has been a considerable amount of change to pension’s policy and practice over recent years and both the industry and individuals really need a period of consolidation and stability on the major changes that have already occurred - notably auto-enrolment and pension freedoms.
It must also be remembered that two major changes to pension tax allowances are already in the pipeline and come into force in less than three weeks’ time. These consist of a further cut in the Lifetime Allowance from £1.25 million to £1 million and an Annual Allowance taper affecting high earners with an annual income above £150,000 which reduces the allowance from £40,000 to as little as £10,000 per year in many instances.
Although it was rumoured that the Chancellor had his eye on scrapping salary sacrifice for pension purposes and ending National Insurance relief on employer contributions it appears that he has decided not to proceed down those lines. Given the damage that this might have done to pension saving and the willingness of employers to support and maintain their pension schemes, this is welcome.
I am particularly happy that the Government has also indicated its intention to have a Pensions Dashboard up and running by 2019 to allow individuals to view all of their retirement savings in one place.
The proposed new Lifetime ISA appears to have echoes of George Osbourne's alleged original plan to introduce a Pensions ISA which would have turned the existing system of tax relief on its head and in my view would have had injurious effects for the pensions system as a whole.
As this new arrangement sits on top of and doesn't fully replace the current pension system, those dangers are to some extent ameliorated but much depends how the policy develops from now and whether in fact the Lifetime ISA becomes the forerunner for a full blown Pension ISA.
As it is, young people have many financial commitments and may only have a limited amount of money they can afford to commit to a savings plan. This could mean they chose to invest in a Lifetime ISA in preference to a conventional pension arrangement which in turn could have serious consequences for long term saving and undermine the success of auto-enrolment to date. The full impact of all of this will only become clear over time.
Underpinning the new pension freedoms with a fully functioning and effective advice and guidance service is essential to the success of the policy. There has been some concern about the statutory guidance providers and the interaction between them. There has also been some concern with the level of take up of Pension Wise.
Hopefully the provision of a new pensions guidance body will streamline the service and enable consumers to receive answers to their pension queries in one place at all stages of their lives. I wait with interest to see exactly how this will develop and the nature of the new service that is provided. In the meantime it's clear that a substantially slimmed down version of MAS will emerge which implies some criticism of its performance to date.
I am particularly happy that the Government has also indicated its intention to have a Pensions Dashboard up and running by 2019 to allow individuals to view all of their retirement savings in one place. This is very desirable and should make consumers better informed and enable them to cover shortfalls in their pension provision with more confidence.