Now the dust has settled, Mike Morrison considers the principal pension talking points of a Budget that appears to have offered just enough to write indignantly about but perhaps not to do too much damage.
The run-up to the Budget brings all manner of ‘wish lists’ from the finance services sector, indicating what we would like to see – and what we are hoping not to see. In the pension world, the campaign motto when it comes to Budget season seems to have become ‘no tinkering, please’.
It is a little sad our first reaction is to assume the Government will tinker and make pensions less attractive as opposed to putting policies in place that would make the pension regime more attractive.
Alas, however, years of experience have taught us short-term tax needs mean tinkering always trumps long-term planning.
If you delve further below the exterior and ask whether we would rather see some change or no change, I believe the industry would opt for a ‘Goldilocks’ approach – not too little, not too much but just the right amount.
If nothing happens, the market risking becoming stagnant and, anyway, we all know things are not perfect so some changes would be welcome. At the other end of the spectrum, too much likely means real change but probably for the negative, which is also not good. Oh for the day when we see lots of positive announcements …
‘Just enough’ is often best and this year’s Budget probably just about met the Goldilocks test – but only just about. Just enough to write indignantly about something but perhaps not enough to do too much damage.
So what were this year’s key developments from a pensions perspective?
* The Money Purchase Annual Allowance (MPAA)
The MPAA saw no mention and therefore will be reduced, as planned, to £4,000 with effect from 6 April 2017, even though much of the response to the consultation was negative.
It will be administratively cumbersome and it does send a negative message. We are told we are an ageing society that must take a flexible approach to work and pension funding – so restricting contributions in such a way seems incompatible with this. Not to mention the fact that the reduction flies in the face of the pension freedoms.
* 25% tax charge on QROPS transfers
A tax charge of 25% may apply to transfers out to Qualifying Recognised Overseas Pension Schemes (QROPS) where the transfer request has been made on or after 9 March 2017. There are a number of exemptions:
- Where the pension is being transferred to the same country the member is moving to.
- Where the pension and member are both going to European Economic Area states.
- Where the QROPS is an occupational scheme sponsored by the member’s employer.
I think this is a positive move – there is little need to move to any QROPS unless pension and member are in the same country. It is also noticeable that Brexit uncertainty has been used to try and scare people into such transfers.
Those are the big pension issues out of the way but I should also briefly mention master trust tax registration. The government will amend the tax registration process for master trust pension schemes to align with The Pensions Regulator’s new authorisation and supervision regime.
Among all the other general tax and allowance changes, there will be pension and retirement planning opportunities. The cut in the dividend allowance could mean changes to remuneration strategies, which may result in more opportunities to pay pension contributions. I am sure the promised consultation of funding long-term care will also have relevance.
So perhaps we can agree that not too little, not too much and just the right amount is enough.
Mike Morrison is head of platform technical at AJ Bell
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