As with all government seasonal statements and full-blown Budgets, the days leading up to this year’s Autumn Statement on November 17 were rife with rumour and speculation amongst the media and financial services industry as to what chancellor Jeremy Hunt would say. Pensions is one area where this is certainly true.
Indeed, it is as certain as night follows day that, once the date of the next statement or Budget is released by HM Treasury, conjecture begins about what might happen to perennial favourites, including the annual allowance, lifetime allowance, pensions tax relief and the much-loved pension tax-free lump sum – typically regarded as sacrosanct.
Last week’s Autumn Statement was no exception, and the extraordinary events leading up to its delivery potentially augmented the preceding rumour mill.
The ill-fated "mini" Budget only taking place eight weeks before, the subsequent impact on the UK economy, and the replacement of both the chancellor and prime minister within Conservative circles created a backdrop unseen in recent times.
Crucially, the emphasis on unfunded tax cuts and growth that had prevailed within the "mini" Budget would now be replaced with a multi-billion-pound cocktail of tax increases and spending cuts.
Heard it on the grapevine
Given the cost of pensions tax relief to the Treasury – a figure that now exceeds £40bn per tax year – the potential for adjustments to its scope and generosity were unsurprisingly held up as an obvious target for Hunt’s fiscal scalpel.
Indeed, it was not that long ago that a previous Conservative chancellor Philip Hammond had publicly stated that pensions tax relief was “eye-wateringly expensive”, which chimed closely with the “eye-wateringly difficult decisions” that Hunt proclaimed he would need to make.
The removal of higher rate pensions tax relief for those individuals paying either higher or additional rate income tax constituted the most likely outcome, given that a move to one lower rate of tax relief for everyone had been mooted more than once before.
The hallowed pensions tax-free lump sum was also mentioned in dispatches; not necessarily its complete abolition, but rather a reduction in the maximum amount of tax-free cash that could be drawn from a pension fund.
Speculation like this is dangerous, because it can tempt individuals into courses of action with their pensions that they later live to regret, if the rumours prove unfounded.
Another area of pre-statement gossip surrounded the annual and lifetime allowances. Would the size of the annual allowance be cut to, say, £20,000 per tax year so that it mirrored the annual Isa allowance and reduced the tax relief bill?
Or would the current freezing of the standard LTA be extended by further tax years, increasing the likelihood of individuals’ accumulated pension funds exceeding it when drawing benefits, and thereby generating sizeable excess tax charges bound for Treasury coffers?