1. Pension tax relief
“Large-scale reform of the UK’s pension tax relief framework was reportedly shelved ahead of the last Budget as former Chancellor George Osborne attempted to avoid rocking the EU Referendum boat. It is not inconceivable Philip Hammond will return to these reforms in the Budget – particularly as pension tax relief is expected to cost the Exchequer £38.2 billion in 2015/16. With the NHS in crisis, the Chancellor may be tempted to raid pensions in order to beef up healthcare.
“However, the Treasury may be nervous about pursuing a radical, resource intensive and potentially unpopular reform, especially with ministers’ minds firmly focused on Brexit negotiations.
“A savings culture is slowly being fostered in the UK, but this is at an early and potentially fragile stage. People are still not saving enough for their retirement and the last thing we need is more uncertainty that would put people off savings. Auto-enrolment and the pension freedoms have barely had time to bed in but the early signs are positive and a period of stability in the pension market could go a long way to giving people confidence they can invest without fear of the goalposts moving again.”
2. Money Purchase Annual Allowance (MPAA)
“Tinkering with pension contribution allowances is a perennial favourite of Chancellors on Budget day and Philip Hammond showed he was no exception in the Autumn Statement.
“The proposed cut to the MPAA flies in the face of the pension freedoms. People are being encouraged to use their savings flexibly and yet when they do so they are punished with a drop in their annual allowance from £40,000 to £4,000.
“It is not just the super-rich who will be affected – large chunks of middle Britain, many of whom might need to catch up for years when they have failed to save, will also be caught.
“We’d like to see the Chancellor take a step back from this proposal and look at other measures that would be economically more beneficial to the Treasury and fairer to consumers. For example, scrapping pension carry forward for money purchase contributions for anyone who has accessed their pension and creating a ‘universal MPAA’ when a pension is accessed in any way (including tax-free cash and annuity purchase) would be a better solution.”
3. Lifetime Allowance / Annual Allowance
“The Lifetime Allowance for money purchase pensions is unnecessary and has created a wildly complex set of protections for past allowances as it has reduced over the years. If the Chancellor does proceed with the cut to the Money Purchase Annual Allowance (MPAA) he may try and soften the blow by removing the Lifetime Allowance. This would be a welcome move as it would greatly simplify things for pension savers and remove the danger they get penalised for achieving good investment growth.
“The amount that can be saved in money purchase pensions is already controlled by the Annual Allowance and this is another area to look out for. If the Chancellor decides to leave the MPAA as it is and remove the Lifetime Allowance, he could reduce the amount people can pay into pensions each year as a way of controlling the cost of pension tax relief. This would arguably be a simpler approach but only if the Lifetime Allowance and the reduction of the MPAA are scrapped.”
4. Savings allowances
“Chancellor Hammond has already said he doesn’t have a pot of money under his desk so it is unlikely we will see any major giveaways for savers in the Budget. The main ISA allowance is already due to rise significantly to £20,000 in April and we would like to see the Chancellor maintain the Government’s commitment to increasing the ISA allowance each year in line with inflation. The last thing we want is for it to be frozen at £20,000 for the next ten years as many other allowances have been.”
5. State pension triple-lock
"The future of the state pension triple-lock look set to be a key political battleground as the Budget approaches. The influential Work and Pensions Committee has gone on the attack this week, with MPs warning retaining the triple-lock will force up the state pension age. Meanwhile, Labour has already committed to retaining the triple-lock beyond 2020.
“While its future may appear bleak, it’s worth remembering the triple-lock was introduced to help recover some of the value lost after Margaret Thatcher controversially scrapped the earnings link in 1980. However, it was never meant to be a permanent measure and costs the Exchequer billions. The Government will be wary about hitting pensioners ahead of the 2020 election - and breaking its manifesto promise in the process - but it would be no surprise to see the Chancellor signal the end of the triple-lock in his Budget speech.”
6. State pension age
“The Cridland review into the state pension age is due to report this year, so the Chancellor may want to ‘roll the pitch’ by signalling the Government’s preferred direction of travel for future increases. Given the more flexible approach people are taking to retirement today, the Government could look at allowing people to take their state pension earlier, with the amount they receive adjusted so it is cost neutral for the Exchequer. This would be a positive development and in line with the pension freedoms where people have greater control and choice around how and when they draw their retirement income. However, immediate spending concerns may well see the Treasury dodge this reform – which would increase short term cashflow strains – at least for the time being.
“The Chancellor will also inevitably face pressure to make the system fairer, particularly given the huge variations between the life expectancy of different regions and socio-economic groups. However, means-testing has been a complex nightmare in the past and the Government must avoid recreating such complexity at all costs.”