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.
Given the cost of pensions tax relief, the potential for adjustments to its scope were unsurprisingly held up as an obvious target for Hunt’s fiscal scalpel.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.
Speculation like this is dangerous, because it can tempt individuals into courses of action with their pensions that they later live to regret.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?
Last but not least were the hokey-cokey parliamentary manoeuvres surrounding whether the state pension triple lock would return, particularly once the September CPI figure became known, and thereby providing pensioners with the daunting promise of a 10.1 per cent increase in their state pension from next April.
As the dust settles, it could be argued that it was potentially a good statement for pensions.Interestingly, as the day of the Autumn Statement drew nearer and the prime minister and chancellor went into expectation-management-mode, two pension-related aspects received multiple mentions.
Firstly, that the pensions triple lock would return and the 10.1 per cent increase would be honoured in full, and secondly that the LTA would be frozen for a further two tax years until 2028.
Indeed, the latter possibility increasingly became an expectancy, as other income tax allowances and thresholds were also anticipated to be frozen until that year.
A good statement for pensions?
And yet – on the day itself – most of the rumours and speculation surrounding pensions came to nothing.
Indeed, as the dust settles, it could be argued that it was potentially a good statement for pensions.
To resounding cheers from the commons backbenches, the state pension triple lock was reinstated in full, along with other state benefits, and pleasingly, pension credit too, with Hunt declaring to pensioners that the largest-ever increase to their state pensions meant "this government is on your side".
Apart from that, pensions were hardly mentioned and the rumoured changes to pension tax relief, the annual allowance, the LTA and pension tax-free lump sums were all conspicuous by their absence from the statement.
Any statement or Budget delivered during 2023 will undoubtedly be preceded with predictions about possible changes to pensions.In addition, the reduction in the starting income point for the payment of additional rate income tax offers the potential for more high earners to receive extra tax relief on their pension contributions.
Indeed, with the reduction in dividend and capital gains tax allowances that were announced in the statement, maximising pension contributions looks an increasingly attractive proposition.
However despite this potentially good news, nothing can last forever.
Depending upon the direction of inflation and the prices of food, petrol and energy over the next few months, any statement or Budget delivered by the chancellor during 2023 will undoubtedly be preceded with predictions about possible changes to pensions.
James Jones-Tinsley is self-invested pensions technical specialist at Barnett Waddingham
