06 November 2014 - Post by:Stephen Richards
This year the government announced sweeping changes to the law governing occupational pension schemes. Most notably, people will no longer be required to buy an annuity with their money purchase pot. We will also see the introduction of caps on member charges, a requirement for members to receive guidance before retirement and a continually growing governance structure for money purchase schemes. In this blog I will take a look at some of the latest big ideas for pensions and give my predictions on whether the government will be proposing them in 2015.
Higher-rate tax relief on contributions to be scrapped: This year Pensions Minister Steve Webb called for a flat rate of tax relief for pension contributions of 30%. The Centre for Policy Studies think tank recommended a flat rate of relief of 50p for every £1 saved instead. Prediction: Likely. I will definitely be keeping an eye out for this one at the next budget.
Removing the ability to opt-out of auto-enrolment: The Policy Exchange urged the government to make it compulsory for people to make pension savings. The think tank suggested a new “Help to Save” pension scheme which doesn’t provide the option to opt-out. Prediction: Unlikely. We have just been told that pensions are about “freedom and choice”. It’s hard to make pension saving compulsory when buying a retirement income is not.
Removing tax free cash lump sums: In 2013 the Pensions Policy Institute proposed changes to tax-free lump sums on retirement. The PPI has suggested that the tax free lump sum should be capped at £36,000. Prediction: Evens. I think some sort of restriction of the tax free lump sum is coming, but it will be very unpopular.
Halve the state pension: The Institute of Economic Affairs feels that the state pension is unsustainable and proposed that the Government scrap the £155 a week flat-rate pension and instead pay around £75 combined with a tax rebate system for workers which varies according to age. Prediction: Not going to happen. This would be a deeply unpopular cut.
No changes: The government could decide that a period of calm and consistency is what is needed to allow people to understand and trust a complex and greatly changed pensions landscape. Prediction: Pull the other one!
Stephen Richards is a senior associate at Allen & Overy LLP.