The chancellor will need to generate income, are pensions in the firing line?22 March 2017
Just a week after announcing that National Insurance contributions would be increased for the self-employed in his first (and last) Spring budget, Chancellor Phillip Hammond made a shock u-turn and scrapped that policy altogether.
While this news was welcomed by many, the question of how the government will make up for this lost revenue remains. Gary Smith, chartered financial planner at Tilney, looks at what may be in the firing line.
“The government has made a lot of promises in terms not raising taxes in certain areas – income tax, NIC and VAT are all untouchable, unless they renege on these promises. However, there is one area in which they have made no promises and therefore I believe pensions could be firmly in the firing line.
“An easy option for the government would be to reduce the annual allowance to £30,000 from its current level of £40,000. This will further hit those saving for retirement as they will either have to put less into their pension, or be hit with a higher tax charge. Those in defined benefit schemes may have little choice but to pay the higher charge, but those in more flexible schemes may want to look at alternative options, such as Isas, where you will now be able to save £20,000 tax free.
“The chancellor may also decide to scrap carry forward of pensions allowances. From this coming tax year, the amount you can carry forward has been reduced from £50,000 to £40,000, so there is every chance this will be reduced even further.
“Finally, the government could introduce a flat rate of pensions tax relief. This would help boost retirement savings for basic tax payers, while reducing the amount that higher and additional rate taxpayers currently receive. This would help encourage lower earners to save while the higher earners are unlikely to need help from the state anyway. However, middle earners would feel the hit on this policy.
“Ultimately, pensions are always going to be an easy hit as they are so complicated and few people fully understand them. I had anticipated that pensions tax relief would be attacked in the chancellor’s Autumn Budget even before the national insurance backtrack, so I now think the attack could be even harder. It is therefore more important than ever to ensure you have made full use of all your allowances this tax year and speak to your financial planner to ensure you are protected against any changes that may be coming.”
Tilney is a leading investment and financial planning group that builds on a heritage of more than 180 years. Our clients are private investors, charities and professional intermediaries who trust us with over £23 billion of their assets. We offer a range of services including financial planning, investment management and advice and, through our Bestinvest service, a leading online platform for those who prefer to manage their own investments.
We have won numerous awards. Tilney has been awarded Best Conventional Advisory Service at the 2018 City of London Wealth Management Awards, Best Advisory Service in the 2015 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. Bestinvest was voted Best SIPP Provider and Best Fund Platform at the 2017 City of London Wealth Management Awards, Best Direct SIPP Provider at the YourMoney.com Awards 2017, Best Stocks & Shares ISA Provider at the 2017 Shares Awards, as well as Best Self Select ISA Provider, Best Online/Execution-only Stockbroker and Best Investment Platform 2017 at the FT and Investors Chronicle Investment and Wealth Management Awards, as voted by readers of the FT and Investors Chronicle.
Headquartered in Mayfair, London, the Tilney Group employs over 1,000 staff across our network of 30 offices, enabling us to support clients with a local service throughout the UK.