For anyone who has spent the past 12 months getting to grips with the new pension rules, the news another ‘revolution’ may be round the corner will not necessarily be welcome. However, this now looks likely following Chancellor of the Exchequer George Osborne’s announcement of a new consultation on the UK’s pension regime.
There are no firm details as yet, but the Chancellor expressed a wish to simplify the pension system, observing: “Pensions could be taxed like ISAs – you pay in from taxed income and it is tax-free when you take it out. In between it receives a top-up from the Government.”
The reaction from the financial sector has been mixed. Although many welcome the impulse to simplify the regime, they believe ISAs have retained a ‘halo’ effect precisely because they have been relatively immune from government tinkering. As one industry commentator observed for example: “What the current regime could really do with is some stability and relief from further meddling.
“The only way to encourage more people to save is to keep the rules as simple as possible. ISAs are a truly trusted product within the financial services industry – they are simple, easy to understand and accessible. It would be disastrous if people were to save for retirement only to find in later life that a cash-strapped government changes the rules again to tax income for a second time.”
The Chancellor’s move to taper tax relief on pensions for high-earners had been well-flagged. From April 2016, for every £2 of adjusted income over £150,000, an individual’s annual allowance will be reduced by £1, down to a minimum of £10,000. Wealth planners have urged higher-earners to take advantage of the reliefs where possible up to the end of this tax year. However, Osborne did not – as some had expected – make changes to the salary-sacrifice regime, meaning higher-earners on the margin can still use this to bring them below the threshold.
Elsewhere, the Chancellor chose not to provide any greater clarity on the resale of annuities, deferring further details until the autumn. In the meantime, prospective retirees must continue to digest the new rules, plus the limits to the lifetime allowance announced in the March Budget. The Chancellor may have ambitions to make the pension regime simpler but, for the time being, complexity reigns