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There has definitely not been any energy blackout affecting the pensions rumour mill. The triple lock, pensions tax relief and tax allowances are in focus. So, even if a consensus appears to be established that the 25% tax-free lump sum will never be slaughtered, this still leaves plenty to speculate.
The country is facing a gaping hole in the public finances, that’s the message we are hearing. More tax, less public services. Courtesy of former prime minister Liz Truss (it recently occurred to me that her tenure of 45 days is the same as that required for T Level industry placements – perhaps there’s a thought), we have an extra few quid to find to pay the bill, and find them chancellor Jeremy Hunt will, you've guessed it, in your pocket. But which pocket will it be? The dividends pocket? The national insurance pocket? The R&D pocket or – the pensions pocket?
It’s not a message the pensions industry is keen to hear, but the Institute for Fiscal Studies tells us that working age people’s income is now, on average, lower than that of older people, not to speak of wealth.
The other fact a Tory chancellor with two years to go until the next general election will face is that more than half of over-60s who voted in 2019 chose the Conservatives, according to YouGov.
No points for guessing which will prevail. Axing the triple lock seems unlikely to be a real option during a cost-of-living crisis. Although everyone apparently knows deep down that the policy can’t stay forever, nobody wants to be the one to lay it to rest. More comment on the triple lock can be found here.
LTA and TAA – a public sector problem?
The lifetime and annual allowances are perhaps most likely to be up for debate in the imminent fiscal event, and an extension of the freeze to the lifetime allowance has already been trailed in the press. As these allowances primarily affect high-earning public sector employees, in reality the issue, though discussed in general terms, falls into the plentiful basket of labour disputes that the government is currently carrying. This one is mainly debated by doctors, who we are told are still retiring or cutting hours to avoid having to pay punitive tax charges on pensions.
The government has de facto already admitted defeat to clinicians – first by lifting the income threshold for the annual allowance to a level where only the very highest earners are affected and then, last September, by allowing members to opt out of the NHS scheme and take the employer contribution as cash.
But it seems this is not enough. Nye Bevan convinced reluctant doctors to agree to the creation of the NHS “by stuffing their mouths with gold” (letting them do private work and only contracting rather than employing GPs). He would probably be the first to concede that saying no to the medical profession is effectively impossible. Notwithstanding the strain on the NHS, the British Medical Association is never short of time and energy to campaign. More gold, please. What choice do we have?
If the lifetime allowance is frozen for longer, it would be another example of the ‘fiscal drag’ strategy that seems to be a favourite of prime minister Rishi Sunak’s in the current inflationary environment. But he will know that it would pour oil on the fire of the BMA, which has already decried the suggestion as a final nail in the coffin of the health service. If the government does go ahead with freezing the LTA, it could therefore include mitigating measures for senior clinicians. Or Hunt and Sunak could simply drop the idea. Sunak’s wife might be a non-dom, but let’s not forget that his father was a GP – or that the PM has already caved in on a proposed £10 fine for no-show patients after the BMA’s outcry.
Tax relief change – opening a can of worms?
The Treasury has, under previous Conservative governments, repeatedly said there was no consensus for any one way to reform pensions tax relief, pointing to a 2015 consultation on the issue by former chancellor George Osborne.
Although it is not always said, there also seems to be a view that a change to tax relief would simply require too much effort from an industry already adjusting to dashboards, net pay etc – even just for cutting the basic rate of income tax, the pensions industry was going to be given an extra year to adapt systems from 20% to 19%.
There is also, again, the middle England problem, of course. And what is more, the fiscal benefits of flat-rating are less than clear based on how the Treasury calculates the cost of the relief, as Willis Towers Watson pointed out in a razor-sharp analysis last year. My favourite line: “Taxing Peter when Paul’s ex-employer clears a deficit.” Arguably the more important line is however: “HMRC’s approach seems likely to overstate the cost of tax relief.”
Social care is the elephant in the room
Theresa May's failed attempt to reform social care funding is usually blamed for the Conservative party losing its majority in the House of Commons in 2017. As PM, Boris Johnson sought to tackle social care with a rise in national insurance, before Liz Truss swiftly reverted to avoidance as a long-term strategy. A £500m ‘social care fund’ was set up in September, but it is unclear how this is funded.
However awkward it would be – with Sunak at the helm, there could still be a return of the short-lived 1.25% health and social care levy which (initially in the form of national insurance) was only in effect from July to November this year.
The law implementing the rise was only repealed just over a week ago, but the Treasury’s press release – which does not feature on its homepage – noted that “funding for health and social care services will be maintained at the same level as if the levy were in place”. Perhaps that’s because it will shortly be back in place?
Unlike national insurance, the levy payers would include workers over state pension age, and its being dedicated to the NHS and social care could make it more palatable to many people than other tax rises. With the chancellor telling BBC viewers last Sunday that "everyone is going to pay more tax", this could be one way for him to raise it.
Any good news?
The mid-2020s are creeping closer. The chancellor might just say something about auto-enrolment reforms, which government agreed to after the 2017 review – scrapping the lower earnings threshold and bringing the eligible age down from 22 to 18. It might just happen.
What are your predictions for the Autumn Statement?