Ctrl, Alt, Delete: Will the new chancellor press ahead with radical pensions tax reforms?
Pardon the Interruption
This article is just an example of the content available to mallowstreet members.
On average over 150 pieces of new content are published from across the industry per month on mallowstreet. Members get access to the latest developments, industry views and a range of in-depth research.
All the content on mallowstreet is accredited for CPD by the PMI and is available to trustees for free.
Chancellor of the exchequer Sajid Javid resigned on Thursday and has been replaced with the chief secretary to the Treasury of seven months, Rishi Sunak. What does this mean for possible changes to pensions tax relief?
Sajid Javid’s resignation is reportedly the result of a ‘power grab’ by Number 10 and followed demands that Javid replace his advisers.
Being appointed as the successor of someone who refused to fall into line, Sunak is understandably believed to be someone likely to do the prime minister’s bidding. Most recently, as chief secretary to the Treasury, he condoned the controversial deportation of 50 Jamaican prisoners, some of whom have reportedly come to the UK as minors.
Will Sunak tackle NHS pensions spat?
Pensions is not much less dramatic considering the NHS row over pensions tax relief. The question of doctors taking, effectively, action short of a strike needs urgent addressing. But, as if this dispute were not enough, just days before his resignation, Javid had said that he was considering cutting higher earners’ pensions tax relief to 20%.
The announcement was seen as a publicity stunt by some, including former pensions minister Steve Webb. Speaking at the AMNT Winter Conference this week, he said: “What the Treasury does a month before the Budget is, ‘Ooh, what if we did something really mean?’" As a result, the industry is outraged, then on Budget day it is not happening, and everyone considers the Treasury to have been sensible.
But pensions tax reform has been on the Treasury's agenda for a long time now, says director at policy specialists Aries Insight, Ian Neale.
“While the infeasibility of some of the more radical ideas floated in the past has been clearly demonstrated, there is an ever-present risk that an ambitious chancellor achieves prominence via a dramatic announcement – George Osborne being a recent example – without having properly thought through the consequences,” said Neale.
He thinks the chances of that happening as soon as next month have however receded if not evaporated with the appointment of the new chancellor.
“Mr Sunak is not known for having expressed any views about pensions and is likely to align his approach with whatever Mr Johnson decides he wants to do. It would seem Mr Johnson has, or certainly ought to have, many other priorities than pensions at the moment,” he said.
While nothing much should be expected on pensions in the upcoming Budget, Neale is hoping for a response to a consultation on flexible accrual in the NHS Pension Scheme by the Department of Health and Social Care.
Master trust wants to make saving more attractive for lower earners
Others still voice their support for a review of how pensions tax relief is applied – ideally by a pensions commission. Gregg McClymont, director of policy at master trust The People’s Pension, said he hopes the change at the helm of the Treasury will “encourage a clean slate approach” to tax relief.
“The new chancellor will be fully aware of the challenges, but I would urge him to use the March 11 Budget to announce a comprehensive review of pensions tax relief as part of a joined-up new independent Pensions Commission,” said McClymont.
He called for a universal flat rate of 30 per cent, “to improve the position of the vast majority of taxpayers” arguing that most of the £35bn given in tax relief every year goes to higher rate taxpayers.
Sunak urged not to damage budding saving culture
There is however a worry in parts of the industry that the government will be robbing Peter to pay Paul. Kate Smith, headof pensions at provider Aegon, said with Javid’s resignation, the big question will be whether the new chancellor will introduce any radical reforms to tax relief.
“It could be seen as an opportunity to free up money to deal with the issue of social care funding, an outstanding issue which should be at the top of Sunak’s in-tray,” she noted, but added: “We would urge Rishi Sunak and his team to avoid rushing into any decisions that could do long-term damage to UK retirement savings and prioritise finding a sustainable solution to dealing with the social care funding crisis.”
What do you expect from Sunak in terms of pensions?