Pensions industry breathes a sigh of relief that no major change is announced

23 November 2016

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Jason Whyte, Director in EY’s Life & Pensions practice, comments on pensions:

“If no news is good news, then Philip Hammond’s first Autumn Statement was a good one for the pensions industry. The Chancellor reserved his barbs for the opposition, and delivered the UK’s pension providers a respite from the constant change of the last few years. There was a moment of nervousness when he announced measures to tax salary sacrifice schemes in the same way as earnings, swiftly calmed by confirmation that pensions, along with childcare, cycle to work and ultra-low emission cars, would not be affected. We will have to wait for the consultation to learn how the government plans to tackle pensions scams – but moves to clamp down will be welcome and help to boost public confidence in the system.”

But both (chargeable) gains and losses are in the small print…

“In the small print, there are changes for holders of life insurance investments and pensions in drawdown. Pensioners wanting to contribute to pension pots they have begun drawing down will need to watch out for the Money Purchase Annual Allowance (MPAA) dropping from £10,000 to £4,000. But there is better news for people who want to partially surrender a life policy. Previously this could sometimes trigger a tax charge on any capital gain, but now policyholders can apply to have that recalculated on a “just and reasonable” basis.”

Overall, more to be done to encourage lower earners to save

“However, for UK pensions reform, this is not the end, nor even the beginning of the end. George Osborne left office with his programme of reform half-finished. More still needs to be done to encourage lower earners to save enough for the retirement they expect. The contribution taper to reduce the tax relief taken by the highest earners has proven cumbersome in practice. At some point these will have to be addressed, but it seems that they could now be on the back burner, perhaps until the dust settles on Brexit.”