Brexit set to derail pension freedoms

Brexit set to derail pension freedoms

The pension freedoms revolution launched two years ago by the Chancellor of the Exchequer George Osborne could run out of gas following the EU referendum result last month.

Pension experts have warned that some plans may have to be put on hold.

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.

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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 may prove an uncontroversial way for HM Treasury to raise cash.

Blair Cann, senior partner and adviser for Hertforshire-based M Thurlow & Co, said it was likely that pensions tax relief would 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 either be scrapped or face further delays.

The launch of the Lifetime Isa and the secondary annuity market are 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 Mr 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 Mr 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.