On the face of it the pension changes are good news. Having spent the previous decade or more chipping away at the tax advantages of pensions the chancellor appears to have blown things wide open again.
However, on balance, I don’t particularly welcome the changes because, to my mind at least, they create more planning uncertainty and confusion, not less. In financial planning we are always looking to increase certainty and to minimise future regret.
Where we find ourselves today started with a process called “Pensions Simplification” in 2006. That led to “Pensions Freedom” in 2015. The intentions of both were welcome and the changes needed. However, the best intentions rarely survive political manipulation, and so it has been proved – pensions have never been less simple or, arguably, less free.
The approach of successive Governments gives me no confidence, there is little doubt pensions are now a political football, used to buy votes. Just last September this Chancellor stated the Lifetime Allowance will stay as it is until 2026. Just six months later he has performed a 180. Last year, in an interview with The Telegraph, Labour confirmed they would remove the Lifetime Allowance. Last week they performed their own 180 and confirmed they will reintroduce a Lifetime Allowance once in power.
Or will they? Talk is cheap apparently. And where does that leave us when it comes to planning between now and the day Labour are back in power? There are several things to consider and perhaps act on in the next tax year and before the next General Election. As we get our own clarity on the issues at stake, we will talk to clients affected. For most the changes have no effect at all.
Other points to note and perhaps discuss include:
- Tax relief on pension contributions is mesmerically difficult to understand. The Chancellor upped the limit (great news if you are a high earner) but still penalises those with very high earnings or those working while topping up with pension income.
- We now have a capped tax-free allowance for all pension savers. If your pension pout is greater than the current Lifetime Allowance you cannot receive more tax free cash (unless you have protections in place).
- This may also affect what is available tax free on death.
- Also, the first murmuring about the IHT free status of pensions have been heard.
I could go on, but I will not.
It leaves me wondering if it isn’t time pensions were removed from politicians’ control.
The evidence suggests they can’t be trusted with them, preferring instead to use them to manipulate outcomes to suit their short term needs.
Off with their heads I say!