"With the Government now focused on paying for the generous Covid-support packages on offer throughout the pandemic, rumours are rife that pension savers will face the brunt of potential cuts and tax increases."
As such, many will be hopeful that the Autumn Budget– due on 27th October 2021 – will provide reassurances to the retirement services sector. With the Government now focused on paying for the generous Covid-support packages on offer throughout the pandemic, rumours are rife that pension savers will face the brunt of potential cuts and tax increases.
The question, therefore, is whether there is any substance behind these rumours.
The affordability of pension tax relief
One of the biggest concerns for the pension sector is whether the Government will cut pension tax relief. Whilst one of its more generous policies, it is also one of their most costly. Indeed, earlier this year, it was revealed that pension tax relief cost the Government £41.3bn in the 2019/20 tax year. As such, there are rumours that the Chancellor is considering cutting the tax relief to either one flat rate for all savers, or proportionally reducing the relief to each separate tax bracket.
Of course, advisers and savers alike are opposed to such a change. After all, pension tax relief actively encourages people to save for their retirement – a feat which will ultimately help people become less dependent on the state throughout retirement.
What’s more, the decision would likely be politically damaging to the Conservative Party. After all, their decision to temporarily pause the state pension triple lock was met with uproar. Consequently, it would be a risky move to cut pension tax relief in this context, and I certainly hope that pension tax relief will remain untouched for the foreseeable future.
Simplifying the pension system
One prominent point of discussion throughout 2021 has undeniably been the over-complexity of the UK’s pension system. Unfortunately, years of adding layer upon layer of complexity to the system and its various processes came to a boiling point last month, when ONS figures revealed that the Department of Work and Pensions (DWP) have underpaid 134,000 pensioners – most of whom are women – over £1bn.
This scandal was largely blamed on outdated technology being unable to track payments and unnecessary rules. As my colleagues and I pointed out when the figures came to light, the Government’s failure to acknowledge the problem made such a disaster unavoidable.
With this in mind, I hope that the Chancellor uses the Autumn Budget to announce a comprehensive review into the DWP’s system and processes, pledging to invest in overhaul where necessary. Further to this, I expect the review to be fully transparent, so the pension sector can hold the Government to account. Too many people have already suffered, both financially and emotionally, as a result the current system’s incompetence. It is only right that the Government addresses these issues accordingly.
National insurance increases
Advisers will all be anticipating that Mr Sunak will announce the rise of national insurance payments in the Autumn Statement.
Such tax increases are unlikely to have an immediate impact on individuals’ pensions – my concern, however, is that it will cause a long-term decline in contributions. This is because rises in national insurance will result in a reduction of household income, therefore causing budgets to tighten. Consequently, many people will likely prioritise immediate financial commitments, such as mortgage payments or utility bills, while long-term financial planning will fall by the way-side.
This may mean that people will only realise that they haven’t saved enough for retirement before it’s too late, placing a great deal of pressure on advisers, who are left to develop last-minute plans to ensure people can retire somewhat comfortably.
So, I would like to see the Government to take a holistic view to increasing national insurance payments and ensure that all consumers have access to independent financial advice. This should be done by promoting the benefits of such advice, as well as helping savers understand where to find appropriate advisers. Doing so will certainly be a positive step to help people tackle financial issues head on and prevent future financial issues.
I understand that the Government must pay for the Covid-support schemes of the previous 18 months, making some tax increases and cuts unavoidable. That said, the burden should not be placed solely on pension planners. The Government must be mindful of this, and where changes are necessary, ensure savers have access to independent financial advice. Doing so will benefit both consumers and the Government in the long-term.