It is a sign of how many shocking Budgets there have been in recent years that Philip Hammond’s inaugural Autumn Statement as chancellor initially prompted sighs of relief.
There was a feeling of general calm following Mr Hammond’s Autumn Statement speech, which while strewn with jokes about Boris Johnson and former shadow chancellor Ed Balls' turn on Strictly Come Dancing, failed to throw up any pension surprises.
Indeed so many interesting and good news announcements were leaked ahead of his speech – mainly around action to tackle cold calls and pension scams – that if it wasn’t for that dig at the Labour shadow chancellor John McDonnell, expressing a hoped Mr McDonnell could dance so he too could enjoy a second career, I may well have fallen asleep.
There had been concerns he would scrap the triple lock but after praising his predecessor George Osborne, Mr Hammond quickly made sure he promised there would be no changes to benefits – yet.
But once Mr Hammond sat down and we were finally able to dig down into the detail of the papers produced alongside the Autumn Statement the baby rabbit out of the hat turned out to be the proposed reduction to the money purchase annual allowance.
I fear it may be a sign of bad things to come for pensions freedoms.The change to the money purchase annual allowance is bad news for pension freedoms – and suggests Mr Hammond may be less than comfortable with the free nature of retirement savings shockingly swept in by his predecessor.
This is the first backward movement since the pension freedoms juggernaut was set in motion in 2014 and is the reason why, rather than pat Mr Hammond on the back for finally recognising the pension scam problem, our new chancellor should be viewed with concern.
The money purchase annual allowance was devised to reduce the ability of people to recycle pension benefits and double-dipping on the income tax relief.
From April 2017, the money purchase annual allowance, which comes into play when someone flexibly accesses their DC retirement savings, will now be cut from £10,000 to £4,000.
In terms of what the cut means, David Robbins, a senior consultant at Willis Towers Watson, said: “Pensions freedom means that over-55s can put money into a pension and take it straight out again, saving themselves tax in the process.
“There will also be National Insurance savings if savings are channeled through employer contributions.
“The government was never going to stand for this happening on a large scale, but it was completely silent on the subject when pension freedom was announced and the subsequent £10,000 annual limit looked like a stop-gap.
“However unsustainable the situation looked, people who have already dipped into a pension pot on the understanding that they would be able to save up to £10,000 a year in future will feel aggrieved that the goalposts have been moved.”
By cutting the limit to £4,000, the government says it will raise £70m a year in tax revenue.
But the real prize is to limit the money it could lose if people were to start gaming the system in large numbers.
This change reduces the maximum possible gain to over-55s from ‘washing’ income through a pension from around £2,500 per person per year to around £1,000 (for basic rate taxpayers whose employers would be prepared to pass on National Insurance contribution savings in full).
However, the government is clear that it does not want to see this happening at all. If that sort of behaviour became widespread, a £4,000 limit on contributions probably would not be the end of the matter.
So, while it may have seemed – and indeed was portrayed by Mr Hammond – as a positive Autumn Statement for pensions I fear it may be a sign of bad things to come for pensions freedoms.
Mr Osborne undoubtedly made pensions more appealing with his freedoms.
Rather than being free, perhaps Mr Hammond is about to make pensions free-range – let us hope he doesn’t go too far and make them caged again.
emma.hughes@ft.com
