On the go: Pensions tax relief and the triple lock have once again been spared by the chancellor of the exchequer, although changes to these costly policies are expected down the line.
In a spend-heavy economic statement, Rishi Sunak chose not to mention how the government would pay for its value added tax and stamp duty cut, among other announcements, in a move that saw the triple lock and tax relief protected.
There was speculation from the industry that the chancellor would look to either scrap or reform the pensions triple lock to remove the earnings link to mitigate any extraordinary rises that may occur as a result of coronavirus and pay off any debts.
Under current rules, the state pension is increased by the triple lock, which is the highest of earnings growth, price inflation or 2.5 per cent a year.
Therefore, as inflation is currently low — a mere 0.5 per cent in May — the state pension is likely to be increased by a minimum of 2.5 per cent or earnings growth.
As a result of the furlough scheme there could be a sharp decline in average earnings this year, followed by a quick and full recovery next year, causing a double-figure increase in 2022.
Mr Sunak also remained silent on whether he was looking at reforms to the pensions tax relief system.
When paying into a pension, savers receive tax relief on any contributions they make, and under the current system tax relief is paid at the highest rate of income tax an individual pays.
This policy costs the Treasury almost £40bn a year in lost income tax revenue, which could be used to pay off the government’s increasing Covid-19 support debt.
In February, it was reported that former chancellor Sajid Javid was looking to make the system fairer for those on lower incomes, by cutting high earners’ relief to 20 per cent.
It is expected that these policies will not get off so freely in the Autumn Budget, with Jon Greer, head of retirement policy at Quilter, claiming that maintaining the triple lock in its current form is “simply not an option”.
Experts have, nonetheless, welcomed the government’s commitment to auto-enrolment in its new Kickstart scheme, which will cover the wages of individuals under 25 years old for six months if they are taken on by companies in meaningful roles.
The positions must be additional to the existing ones in the companies, for a minimum of 25 hours a week and pay at least the national minimum wage. The government will also pay the associated employer national insurance contributions and employer minimum auto-enrolment contributions.
According to Steven Cameron, pensions director at Aegon, “it’s great to see the chancellor again support auto-enrolment”, by allowing employers who take on new employees under the Kickstart scheme to also claim NI and pension contributions.
“While it is only those aged 22 and over who an employer needs to auto-enrol, this is a great way of kick-starting not just employment, but saving for retirement.”
This article originally appeared on ftadviser.com
