Advisers have broadly welcomed news the government will leave pension tax relief unchanged in the upcoming Budget, but predict it is only a politically motivated temporary reprieve.
Chancellor George Osborne has dropped plans to either scrap upfront relief in favour of a ‘Pension Isa’ with tax-free withdrawals from aged 55, or introduce a new flat rate of tax relief, which would have benefited lower earners and hit the wealthier core of Tory voters.
Martin Dodd, adviser at Midlands Investment Agency, told FTAdviser the U-turn was an “enormous relief” because “constant change undermines trust” in pension saving.
But advisers have expressed concern the proposals are far from dead and buried, after a HM Treasury spokesperson left the door open for the reforms to be implemented at a later date, saying now was “not the right time” to make changes.
Dropping plans that were unpopular with many Tory MPs was to ensure party support for the government’s position to stay in Europe, ahead of the upcoming referendum on the issue, they suggested.
“I think the Pisa [Pension Isa] is probably dead but flat rate tax relief will come back if we vote to stay in [Europe] and George Osborne is still at No 11,” Darren Cooke, adviser at RedCircle Financial Planning, said.
Widespread among advisers was the expectation that other aspects of pensions could still be reformed in next week’s Budget.
Alistair Cunningham, adviser at Wingate Financial, said the abolition of salary sacrifice is potential target.
Lifetime and annual allowance limits could also be changed, Mr Cooke said, as “sadly the door is still open for him to tinker with [those]”, with the possibility the annual allowance could become “use it or loose it so no carry back to previous years”.
However not all advisers welcomed the shelving of the pension tax reforms.
Andrew Moore, adviser at Goodmans Financial Planning, said he was “keen for change even though personally I benefit from a delay”.
“I would prefer retirement wealth to build up more widely - a retirement Isa with a top up of 33% would have done that.
“Retirement savings provide flexibility and options. Higher earners have those options anyway. Widespread wealth is a big prize.”
But Phil Stevenson, adviser at Ark Financial Planning, said if the government wanted to address unfairness in the pension system it should focus on what he said was the “pensions apartheid that exists between the unfunded defined benefit schemes and the funded defined contribution schemes”.
laura.miller@ft.com
