Spring Budget: Will the Chancellor give pensions tax a wide berth?
Claire Carey, partner at Sackers comments:
“Indications for the final Spring Budget on Wednesday are that the Chancellor, Philip Hammond, is looking to raise taxes to bolster reserves in readiness for Brexit. While increasing national insurance contributions for the self-employed has been suggested as a possibility for achieving this, could pensions tax, seemingly seen by successive Chancellors as a soft option, also be on his radar?
We already know that the Money Purchase Annual Allowance (MPAA), which limits the tax efficient DC savings that individuals who flexibly access their pensions can subsequently make, looks set to be cut from £10,000 to £4,000 from 6 April 2017. But the Government consulted on a more radical shake-up of the pensions tax system as recently as July 2015, toying with the possibility of shifting from the current ‘Exempt-Exempt-Tax’ (EET) model, to the ISA like ‘Tax-Exempt-Exempt’ (TEE). While the immediate upshot from this consultation is the introduction of the new Lifetime ISA from April, there is still a chance that the Government’s thinking could get bolder.
However, given the complexity of the UK pensions tax system, and the different benefit shapes on offer, any change could not happen overnight. There are also far bigger pensions fish for the Government to fry at the moment. On 20 February 2017, the DWP published its Green Paper on DB private sector pensions, wrestling with the key challenges facing DB schemes and posing a number of questions on what, if anything, to do about it. In addition, the automatic enrolment review, which will consider the success of automatic enrolment to date and explore ways in which it can be further developed, is now underway.
With pension schemes and savers already bracing themselves for further challenges ahead in the form of Brexit, we very much hope that the Chancellor will give pensions tax a wide berth on this occasion.”