What can we expect from the Autumn Budget?

In his first and last Autumn Statement last year, Philip Hammond steered clear from making any major pensions-related announcements, bar a widely welcomed consultation on pensions fraud.

I wouldn’t be surprised to see nothing at all about pensions

Hugh Nolan, Society of Pension Professionals

More recently, rumours that Hammond is considering age-based tax relief plans for his November 22 Autumn Budget has ruffled feathers, prompting industry figures to voice concerns over how this would be implemented.

Some experts pointed out that such a move would “smack of ageism”, while others feared that it would compound people’s mistrust in pensions.

Age-related tax relief unlikely

Hugh Nolan, president of the Society of Pension Professionals, said that while he understands the rationale behind age-based tax relief in terms of the need for intergenerational fairness, it is unlikely to be announced.

He said that younger people are less bothered by tax relief on pensions contributions, “so what you’re actually doing is promising jam tomorrow for a generation who might not vote for you anyway, and taking away from your core support – the older people”.

Nolan highlighted the widely negative reactions to the idea of funding tax breaks for younger people through cuts to tax relief for older workers.

“It’s a clever idea technically, but one that is completely impractical in terms of the political reality of the situation,” he said.

He thinks that “the much more likely scenario, which almost gives you the same effect to a degree, is a change to higher rate tax relief”, explaining that removing higher rate tax relief would be more widely accepted.

Overall, Brexit means that “getting anything through in terms of changes will be very difficult”, said Nolan.

“Any small change might not be sufficient and any big change might be too difficult,” he said. “I wouldn’t be surprised to see nothing at all about pensions.”

Steve Webb, director of policy at Royal London, said he thinks the government wants to do more for young people, but added: “I’d be gobsmacked if it was age-related pensions tax relief.”

He agreed that many younger workers do not even know they are getting tax relief, so “it would hardly be a huge vote winner”.

Webb did not agree that there would be any change to higher rate tax relief. “They’re a minority government depending on the Democratic Unionist [Party], so… flat rate relief or something like that is just too big, bold, radical a change.”

Alongside a big squeeze on public finances, the government is politically very weak, meaning that income tax, national insurance and VAT rates, for example, are hard to raise, said Webb.

This creates “a perfect storm for something like pensions tax relief”, he noted, adding that “the Treasury view is that tax relief is expensive and big, it’s complicated… and they’ve done it before”.

Annual allowances could be cut

Last year’s Autumn Statement omitted any major announcements on the lifetime and tapered annual allowances.

But Webb said that this year, “the annual allowance is where I think the focus would be most likely to be”.

Currently, the annual allowance means that once people start paying more than £40,000 a year into their pension, they stop getting tax relief and must pay a tax charge.

This “£40,000 could easily just go down… it could be £35,000 next year, £30,000 the year after”, he said.  

The tapered annual allowance means that people with an income over £150,000, including employer contributions, will have a lower annual allowance limit.

This could also be cut, said Webb, suggesting that he could easily imagine it going down to £125,000.

Nathan Long, senior pension analyst at platform provider Hargreaves Lansdown, also thinks that “anything radical is very, very unlikely to happen” due to the absence of a majority government and the focus on Brexit.

However, he echoed Webb’s predictions that there might be some form of lessening of the existing allowances that are in place already.

Further tinkering would increase mistrust

The Financial Conduct Authority’s Retirement Outcomes Review interim report found that 52 per cent of fully withdrawn pots were transferred into other savings or investments.

Some of this was due to mistrust of pensions, and concerns about whether the government will keep changing the rules.

Long said that government tinkering with pensions will continue to undermine people’s faith in pensions.  

Generally, he would welcome a quiet Budget with regard to pensions. However, “I would absolutely love it if they got rid of the money purchase annual allowance – I think it’s absolutely bonkers that they’ve reduced that down from £10,000 to £4,000,” Long said.

He noted that, as auto-enrolment contributions rise over the next few years, “you’re going to see more and more people caught by that lower allowance”.