In his first and last Autumn Statement, Chancellor Philip Hammond swapped the timing of the Budget and the Statement but had comparatively little to say about pensions for now; one of the larger measures – a consultation into pensions fraud – was welcomed by the industry.
The chancellor announced a consultation on pension scams to be released before Christmas this year, looking at introducing bans on cold calling, increased powers for companies to block suspicious transfers and the use of small self-administered schemes in investment scams.
Cold-calling ban welcomed
Shadow pensions minister Alex Cunningham said Labour welcomes the moves to prevent cold calling, as well as the preservation of the triple lock, although he added: “The statement was most notable for failing to take the action on pensions needed to protect our most vulnerable and grow savings.”
Industry figures were also positive about the cold-calling ban. Ben Fairhead, partner at law firm Pinsent Masons and a member of the Pensions Liberation Industry Group, said the chancellor’s announcement “reflects a lot of hard work by the industry and a recognition the existing law really isn’t fit for purpose”.
He added that powers to block suspicious transfers could be a positive step in the fight against scams. “Provided it’s done in the right way, that could be a seriously good way of tackling the problem,” he said.
Ian McQuade, director at consultancy Muse Advisory, said that while a ban on cold calling would be difficult to implement, it could still be significant.
“It allows the media to [say], ‘If you get a call from anyone you don’t know about your pension, it will be a scam’,” he said.
Money Purchase Annual Allowance drops to £4k
Having stopped short of taking pensions out of the salary sacrifice honeypot, Hammond was unable to resist tax changes entirely, announcing that the money purchase annual allowance will reduce to £4,000 from currently £10,000.
The limit was introduced as people aged over 55 received access to their pension with the pension freedoms from April last year, to discourage over-55s from recycling money through their pension to profit from tax breaks. The government is consulting on the details of the change until February 15 next year.
David Robbins, senior consultant at Willis Towers Watson, noted that the extent of tax avoidance through this loophole is mostly unknown: “There has never been any analysis on how big a problem it is.”
Robbins added that while the £4,000 threshold was designed to avoid interference with auto-enrolment by making it higher than qualifying earnings, larger employers tended to auto-enrol from the first pound earned, bringing some higher earners above the the limit.
Peter Glancy, head of industry development at provider Scottish Widows, said the change has upsides and downsides.
“There’s going to be less flexibility,” he said, as people will be less able to rebuild pension savings after having withdrawn some. On the other hand, he said, the change “encourages people to think twice” before using pension pots for treats.
The move might disproportionately impact those who urgently need access to cash, said Steve Webb, director of policy at provider Royal London.
“The second you take a pound of taxable cash [the allowance] drops from £40,000 to £4,000. If you have to draw cash urgently, your ability to recover has been slashed,” he said.
For Webb, the policy has not been thought through and might not even go ahead. “They may well drop it once the implications come through,” he said.
No pension rabbits
On the whole, Hammond’s speech did not deliver the changes that had come to be a feature of George Osborne’s stewardship, who had kept the pensions industry on its toes.
Marcus Fink, pensions partner at law firm Ashurst, said: “There’s nothing particularly substantial [in this statement], and I think the pensions industry as a whole will take that as a relief.”
Among the conspicuous omissions from the Autumn Statement were the lack of action taken over either the lifetime or tapered annual allowances, which many had called on the government to scrap.
Fink said that while the added incentivisation to save would have been welcomed by the pensions industry, in reality the tax implications for the Treasury meant it was little more than “wishful thinking”.
“I can’t see the limits being increased, I can only see them being eroded over time,” he said.
Given the government’s objective of calming the nerves of a country still reeling from the vote to leave the EU, failure to introduce policies like the flat rate of tax relief on pensions might not mean they are off the agenda.
What the industry wants to see in the Autumn Statement
Autumn Statements became mini Budget announcements under the previous chancellor. Looking to the new regime, what advice did the industry have for Philip Hammond before he announced his first set of plans?
Barnett Waddingham senior consultant Malcolm McLean, who welcomed the decision not to implement it, admitted: “There’s a good deal of doubt about the direction of travel in that particular area.”
He said Hammond’s promise not to scrap the triple lock until the end of the next parliament might similarly imply that it will be scrapped at some point, although he said it would require a “courageous decision” to fly in the face of a voting pensioner population.
Further policy announcements on tax relief look inevitable, agreed Darren Philp, director of policy and market engagement at B&CE, which runs mastertrust The People’s Pension. He added that the decision to spare pensions from the salary sacrifice ban may also be “the thin end of the wedge”.
Philp is in support of a flat rate, saying: “Moving to flat rate is more equitable, supports auto-enrolment and allows relief to be presented as a matching contribution, which makes it much easier to communicate, if set at a sensible level.”
