Pension freedoms could unravel as a result of the UK’s decision to leave the European Union, retirement income experts have warned.
Less than two years after chancellor George Osborne launched his pension freedoms revolution by ending the requirement to use a pension pot to purchase an annuity his sweeping reforms could be set to run out of gas.
Brexit negotiations will be all encompassing and the government, under a new prime minister, may need to raise funds to shore up the faltering UK economy, AJ Bell’s senior analyst Tom Selby has warned.
For example, AJ Bell’s Mr Selby said recent changes to the treatment of pensions on death – allowing savings to be passed on tax-free when someone dies before 75, and taxed at the recipient’s marginal rate post-75 – may look generous in a post-Brexit world.
While the reform was introduced with some fanfare, Mr Selby said reversing it in these exceptional circumstances may be seen as a relatively uncontroversial way to raise cash for HM Treasury.
Blair Cann, senior partner and adviser for Hertforshire-based M Thurlow & Co, said longer term it was likely that pensions tax relief will be restricted in some way.
But he said changes to the death tax reforms would be extremely unpopular.
Mr Cann said: “The government will wish to minimise the effect on the conservative vote. Nothing wrong with that, it is the way we are governed.”
Lifetime Isas and the launch of the secondary annuity market, which has already been postponed to next April, were identified by the majority of experts Financial Adviser spoke to as most likely to face the chop or face further delays.
The launch of the Lifetime Isa and the secondary annuity market is currently scheduled for April 2017.
The secondary annuity market, which will see pension freedoms extended to those who bought an annuity before April 2015, was originally supposed to be introduced in April 2016 but was delayed by chancellor George Osborne to introduce “an in-depth package to support consumers in making their decision.”
With less than a year to go, both initiatives are at crunch points with key details still missing.
Currently the industry still does not know whether contributions of more than £4,000 a year, which would not receive the 25 per cent government matched contribution, will be allowed.
HM Treasury has also yet to confirm whether borrowing will be permitted, or the criteria for accessing your pot penalty-free before age 60 expanded.
Steven Cameron, pensions director at Aegon, said: “This (detail) will be needed urgently if they are to be ready for next April.”
However various retirement income experts said while the macro-economic outlook is now far less predictable the news last week that the chancellor is abandoning the deficit target could work in the favour of pension freedoms.
Last week George Osborne abandoned the linchpin of his economic strategy – to return the government finances to a surplus by 2020 – following the Brexit vote.
The chancellor, who campaigned to remain in the EU, said there were already “clear signs” of shock in the economy a week after the referendum result sent the pound to more than 30-year lows and cost the UK its last AAA credit rating.
Aegon’s Mr Cameron said: “Ahead of the Budget there had been some speculation that he’d seek to make savings on pensions by reducing the generosity of tax relief.
“While a future chancellor may have difficult decisions to make, they at least won’t have the target of a budget surplus by 2020 hanging over them and we would hope that pensions and tax relief thereon won’t be seen as a source of savings.”
Last week Financial Adviser revealed Britain’s decision to exit the European Union is unlikely to change the need for financial advisers to meet Mifid II requirements and the demands of other rules generated by Brussels.
Mark Spiers, head of wealth management and banks at regulatory consultants Bovill, said: “One of the prime movers behind Mifid II was the FCA so it doesn’t really matter if we leave the EU tomorrow or today - it is coming in come what way.”
