NEWS | Pensions
CHANCELLOR Don’t mention
the pension tax relief,
Steve Webb, former Pensions Minister and now Director of Policy at Royal London, writes exclusively for Director of Finance magazine
W
ith the Autumn Statement coming up on November 23 we face the usual round of
speculation as to whether there will be more changes to pension tax relief. In the run-up to the March 2016 Budget the speculation was about a major shake- up, perhaps replacing tax relief with an ISA-style tax treatment, or moving to a flat-rate of relief for all savers. This time round the speculation is about whether there might be more done to support younger savers, perhaps with a big increase in the rate of tax relief for those at the start of their careers. But can it really be sensible for such a long-term business as pensions saving to be subject to almost constant uncertainty? To get a sense of the scale of the changes in pension tax relief in recent years, Royal London recently analysed the combined impact of changes to the Lifetime Allowance (LTA)
Steve Webb
for tax-relieved pension pots and the fall in annuity rates over the last few years. Taking first the LTA, it peaked at £1.8m at the start of the last Parliament before falling every other year to £1.5m in 2012, £1.25m in 2014 and £1m in 2016. Each
change has had to be accompanied by complex transitional measures which now cover approaching 100,000 people who are now focused mainly on avoiding pension saving rather than engaging with it. What has made matters worse is that the pension that you can buy with a given pension pot has also been tumbling because of falling annuity rates. Someone aged 65 who wants to convert their maximum £1m pension pot into a guaranteed income for life with no inflation protection can now only get a pension of around £45,000 per year. This is a fall of around two thirds compared with a decade earlier when both annuity rates and tax limits were higher. More shockingly still, those who want to buy a ‘gold standard’ annuity with protection against RPI inflation and a good pension for a surviving spouse would struggle to get more than £21,000 per year on retirement.R
dofonline.co.uk
DIRECTOR OF FINANCE
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