The announcement and reversal of proposed changes to self-employed National Insurance contributions is just the latest in a long line of pension policy rethinks dating back a decade and a half, sighs Martin Tilley.
Philip Hammond’s first and only Spring Budget will now be remembered for one thing – the announcement and reversal of proposed changes to self-employed National Insurance contributions.
We are led to believe this action was taken as it was realised such a proposal would breach the spirit of a pre-election manifesto pledge. Such a U-turn is an embarrassment and begs the question – does the Budget not go through a sanity check before it is finalised and released?
This reversal now leaves a £2bn hole in the Budget and measures to shore this up will no doubt be announced in the Autumn Budget. One of the perennial targets for this might well be the tax-incentivised saving towards retirement, which many feel has had an axe poised above its head since George Osborne’s July 2015 consultation.
In the same way that you would not use a hammer to insert a screw, however, my concern is that shoring up a short-term hole by way of an alteration to a long-term savings objective would be to use the wrong tool. There is the worry that any remedial tax measure would be another in the long line of short-term fixes, which have been so damaging to pensions.
This and previous governments have been guilty of this consistently over the last 15 years – notable events date back to 2002 and the announcement of the panacea that was to be ‘Pensions Simplification’.
This last all-encompassing review was supposed to set the framework for a simple system encouraging understanding and thus saving. However, its implementation was delayed by two years and five months before its introduction and a key change in the acceptance of residential property as an allowable asset class was reversed.
When the new era became effective, it introduced the lifetime allowance, which was initially set at £1.5m with structured increments in legislation to take it to £1.8m. No sooner had this level been reached though than reductions to it have been made on not one but three separate occasions.
The last – if not least – of the U-turns, was the reversal of the policy initiated to create a market to sell second-hand annuities. From its announcement, the industry opposed the idea with very plausible reasoning and yet its introduction was first delayed and then cancelled after those that had championed it had already spent a great deal of time and effort in preparation.
It is clear that even when government consultations ahead of changes are released, sufficient notice of the industry’s concerns are often not heeded.
Lost warnings
When Osborne announced the intent that individuals should have control and flexible access to their pensions from age 55, the warnings about early-access rights and potential penalties were lost in the noise until consumers highlighted their plight through national newspapers.
Only then did the government take action. The measures to ensure guidance was in place to assist individuals in this major change of benefit options were rushed into effect only months before implementation. Just one more example of lack of preparation or forethought.
I appreciate that governments cannot foresee specific economic events that might have an impact on longer-term policies, but some indirect consequences of actions are more easily identifiable.
The majority of financial services professionals are expecting a shift away from the current income tax-based relief model but, when we get it, we would like it to be – robust, thought through in advance, stress-tested and rolled out with sufficient time for providers to develop products, for advisers to understand and for consumers to be educated before it goes live.
Bearing in mind the government has another rather pressing long-term strategic plan in the pipeline to which it will need to devote its full resources, I would be surprised and dismayed if we see plans to make significant changes to pensions become operative within the period of the current parliamentary term.
Martin Tilley is director of technical services at Dentons Pension Management
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