Any Other Business: John McDonnell has laid bare his plans to end austerity and tackle the deficit by taxing the rich.
At the Labour party conference in Brighton, the newly appointed shadow chancellor promised the delivery of a serious speech in response to claims he is a 'deficit denier', laying out a plan for the nation’s purse targeting high earners and tax-avoiding corporates.
Plausible outcomes
There are three broad options on the table:
To remain with the EET status quo, or a version of it, with exemptions on the way in and taxation on the way out.
A radical reversal of the current framework to a TEE system under which tax is paid on savings when members draw their pension
Introduction of a flat-rate of tax relief across all pensions saving
McDonnell put forward proposals for a review of the workings of the Treasury and the Bank of England’s mandate, declaring: “Another world is possible. Let’s take this opportunity to seize it.”
The pensions industry has taken its fair share of sweeping changes, reviews and new mandates during recent years, often with policy ideas one step ahead of the detail.
Regardless of political persuasion, stakeholders across the pensions landscape still speak of the blindsiding Budget of March 2014, an offering that required a strong whiskey chaser. And now the industry is poised for a potential game-changing shift in the structure of pension tax relief.
But how should trustees prepare themselves for a possible revolution?
Have your say
The government’s industry-wide consultation on pensions tax relief draws to a close this week, leaving stakeholders on tenterhooks for the eventual outcome.
The government acknowledged the complexities and “wide-ranging implications” of policy change on tax-relief ahead of the consultation and sought to approach the process with an open mind.
Matthew Giles, partner at law firm Squire Patton Boggs, said trustees still have opportunity to respond to the consultation.
“There’s a last-minute chance to have your say,” said Giles, emphasising Thursday’s fast-approaching deadline.
Whatever the outcome, Giles said schemes should hunker down with a focus on data and data security during the next few months in preparation for changes on the horizon.
“Get your data as clean and secure as possible,” said Giles. “There’s generally been a trend of improving data quality but it’s useful housekeeping in anticipation of [change].”
Wait and see
But John Reeve, senior consultant at consultancy Premier, said there was little action trustees could take at this stage.
“Operationally these things are all about the detail – that will take months to come through,” he said.
There’s so much on the post-March 2014 agenda which has yet to be completed that we’ve got enough on our plates without doing lots of scenario testing in case the whole tax regime is thrown up in the air [like] the benefit structure last March
Alan Pickering, Bestrustees
“I’m not sure it’s helpful for trustees to be racking up fees and time on this before the detail is there.”
Alan Pickering, chair of professional trustee company Bestrustees, echoed Reeve’s view.
“At the moment I wouldn’t be encouraging trustees or employers to do anything,” said Pickering.
“There’s so much on the post-March 2014 agenda which has yet to be completed that we’ve got enough on our plates without doing lots of scenario testing in case the whole tax regime is thrown up in the air [like] the benefit structure last March.”
However, Pickering emphasised the important role employers have to play in incentivising savers for the future.
“Employers need to be incentivised to play this game as well as incentivising the individual, since without the active involvement of the employer, the individual saver will have a much lower outcome than would be the case if we can continue to engage quality employers with quality pension provision," he said.
