The £3,600 annual allowance for non-earners has not been increased since it was introduced in 2001 and its value has been eroded in real terms by inflation. The allowance should now be increased to £4,080, the same level as the JISA allowance and index linked so it increases in line with the JISA allowance.
Gareth James, head of technical resources at AJ Bell, comments:
“One of the key uses of the non-earner pension allowance is for parents or grandparents to save for children. Aligning this with the JISA allowance to create a single, consistent children’s saving allowance across both JISAs and pensions would make it easier for parents and grandparents to understand how much they can invest. It would also enable those with income from sources other than traditional earnings to save more for their retirement.”
Five other areas that AJ Bell would like to see addressed in the Autumn statement are:
- The outcome of the consultation on pension transfer and early exit penalties to include a ban on all early encashment penalties that block access to the pension freedoms.
- Pension rules to be relaxed to allow multiple drawdown arrangements within the same pension scheme to be consolidated into one. Currently this can only be done once someone reaches age 75 but the restriction is no longer necessary post pension freedoms. A relaxation of the rules would make it easier to manage drawdown arrangements.
- The permanent relaxation of rules regarding block transfers to match the temporary relaxation introduced in 2014. The temporary relaxation allowed some savers who otherwise would have found it difficult to move their pensions into schemes offering the new freedoms, to do so. However, this opportunity was only available to savers who were old enough to take pension benefits in a limited time frame. Permanently relaxing the rules would allow many more savers to access the freedoms.
- Removal of the requirement for child dependants in receipt of death benefits to take the whole fund by age 23. Currently, if a child receives death benefits from a pension they must exhaust the fund by their 23rd birthday. If they don’t the funds have to be re-distributed to other beneficiaries and/or paid to the child as a single lump sum. Allowing the beneficiary to continue receiving benefits after they reach 23 will remove the compulsion for them to make decisions that may not be in their interests.
- A delay on the introduction of the tapered annual allowance until the outcome of the Treasury consultation on pension tax relief is known. Given the complexity of the taper and the possibility that it may only be a short term measure if it is usurped by wider changes to pension tax relief, its introduction should be delayed.