AJ Bell’s senior analyst Tom Selby gives his odds on six radical money saving options available to the Treasury – and one Government Bill that risks being delayed:
- Death tax reforms to be reversed. Odds: 4/1
“Recent changes to the treatment of pensions on death – allowing savings to be passed on tax-free when someone dies before 75, and taxed at the recipient’s marginal rate post-75 – may look generous in a post-Brexit world.
“While the reform was introduced with some fanfare by Osborne – and made pensions more attractive as a tax planning vehicle - reversing it in these exceptional circumstances may be seen as a relatively uncontroversial way to raise cash for the Treasury.”
- Lifetime ISA delay: Odds: 2/1
“Widely believed to be a potential frontrunner to fundamental pension tax relief reform, the Lifetime ISA remains in the gestation phase and crucial details have yet to be clarified about how it will work in practice.
“For example, we still don’t know whether contributions above £4,000 a year that wouldn’t receive the 25% Government match will be allowed. The Treasury has also yet to confirm whether borrowing will be permitted, or the criteria for accessing your pot penalty-free before age 60 expanded.
“Given these uncertainties, April 2017 now looks extremely ambitious as a launch date. On the other hand, any move to ditch a policy likely to prove popular with younger voters disillusioned by the Brexit vote would be politically risky.”
- Pension tax relief reform: Odds: 3/1
“The Treasury spends around £34bn a year on pension tax relief, so it will inevitably be part of any conversation about reducing Government spending if the public finances do suffer following the Leave vote.
“However, the future Chancellor will weigh up the case for raising money for the Treasury against the risk of angering the electorate and Conservative backbenchers.
“So while fundamental reform – such as abolishing higher-rate relief or introducing a radical pensions ISA system – may be off the table for now, further cuts to the annual and lifetime allowances may provide a more palatable alternative. The Government may also revisit plans to link the £1m lifetime allowance to inflation from 2018.”
- Secondary annuities delayed or scrapped. Odds: 6/1
“This is a tricky one for the Treasury. On the one hand, reforms to allow people to trade in their annuities are set to be a big money spinner for the Exchequer’s coffers, so delaying or abandoning the changes will be costly.
“However, it remains uncertain how the market will shape up or who will come forward as annuity buyers, while clarity has yet to be delivered on how advice will operate.
“With civil servants set to be sidelined by Brexit negotiations, the future of these reforms looks wobbly at best.”
- State pension triple-lock removed. Odds: 10/1
“The triple-lock, which guarantees the state pension rises with the highest of earnings, prices and 2.5%, would have been in severe jeopardy had David Cameron followed through with his promised post-Brexit emergency Budget.
“However, confirmation the ‘punishment Budget’ will not happen, coupled with the fact the Brexiteers have pensioners to thank for their victory, makes removing this valuable benefit politically tricky.”
- Automatic enrolment pushed back (again). Odds: 5/1
“While the automatic enrolment genie cannot be put back in the bottle altogether, a renewed period of fiscal retrenchment would likely see the Government review all of its spending commitments. Postponing planned rises in minimum contribution rates – as has happened before - would be an easy way to save money for the Exchequer and would likely be welcomed by businesses.
“A more radical option would be to delay auto-enrolment for firms yet to reach there staging date, or abandon it altogether for smaller companies. This would help businesses struggling to cope with the costs of complying with the reforms, but would fly in the face of the Government’s pensions policy agenda and add to the risk of millions of people not putting enough aside for their retirement.”
- Pensions Bill 2016 delayed. Odds: 7/1
“The Queen’s speech confirmed a new Pensions Bill will be unveiled later this year. The key elements include improving protections for people saving in master trusts, capping early exit penalties and restructuring the delivery of financial guidance.
“Stronger regulation of trust-based pension schemes and ensuring savers have access to useful, relevant retirement guidance are both critical to supporting the UK’s pension system. However, legislating for Brexit now becomes the priority for Whitehall, so it would be no surprise if the Pensions Bill was kicked down the road to make way.
“Ultimately which, if any, of these policies make it through the current hurricane of uncertainty and confusion depends on how the economy fairs and who takes the helm following the Conservative leadership election.
“But one thing is almost certain – the chaos wrought by the Brexit vote will continue to dominate the agenda throughout 2016.”