In the run up to the Budget, there has been much speculation around what the Chancellor may say and do on pensions. Until recently, the focus – for some worry – was around possible changes to pensions’ tax relief, with vast numbers at stake - £40 billion+ annually.
Reports that the Chancellor may have already taken a pre-Budget ‘U-turn’ are rife, but with it comes to possible changes to pensions at the 2016 Budget – it’s not over until it’s over.
Knee-jerk changes to pensions tax can leave savers with less in their retirement piggy banks
Pensions are supposed to be long-term saving products, relying heavily on significant employer support – which means hard cash. Government policy must encourage this, given that over many years we have all be told we need to save more for our retirement. As with many other key policy areas, what is required a certainty and stability, and for pensions this includes the tax environment. Knee-jerk changes to the tax regime can undermine savers – leaving less pennies and pounds in our retirement piggy banks.
There’s been talk about tax free lump-sums…..
For most, when they retire, they max out on the tax free lump sum which they can draw down, which for most DC savers is 25% of their pot. It’s a key benefit at the point of retirement.
Depending on how you intend to live out your retirement, and your aspirations, a state pension will provide little support for retirees. Currently, the basic state pension is £115.95 – not much to dine out on. Restricting the tax free lump sums would signal that pensions are simply another form of savings and not a route to an income in retirement, and would hit those with moderate pots as much as those looking forward to their retirement in the sun.
We’re hearing whispers on salary sacrifice schemes too…
In manufacturing salary sacrifice schemes are often used to support working parents, particularly mums, in the face of significant childcare costs. They enable women to continue to progress in business whilst balancing their family commitments. Manufacturers use of childcare vouchers and salary sacrifice schemes are a fundamental tool to recruiting and retaining women, in a sector that is predominantly male – they are not a tax dodge or spent propping up the wealthy.
The government was due to introduce tax-free childcare in 2015, this has now been pushed back until 2017. Working parents and employers are then left picking up the (far from modest) bill for childcare, of which salary sacrifice provides some, limited support. But with a Chancellor looking to prune, again, the public finances, they could be another target.
So, to end, manufacturers, working parents, and those with an eye to their pension pots will be nervously listening to the Chancellor on 16th March – and potentially counting the cost.