The annual allowance has been pretty dominant in my world during 2016; at the start of the year we were dealing with mini tax years to work out the pre and post alignment pension input amounts, then we were straight into the tapered annual allowance. The taper has brought a whole host of grief to advisers trying to maximise their clients' pension contributions while not over shooting the tapered annual allowance.
The Autumn Statement raised another issue with the announcement that the money purchase annual allowance will be significantly reduced from £10,000 to £4,000 in the next tax year, 2017/2018, so there will be more planning to be discussed in advance of this change, for those impacted, and help to prevent others from triggering it, if they can avoid it.
The new state pension came into effect on 6 April 2016 and although it is designed to be simpler in the long run, as with any change of this magnitude there will be some transitional complexities to deal with. Those impacted will need to review what they have built up already and what it will mean to them in the future under the new rules.
Only those just starting to build up an entitlement in this tax year will be entirely on the new state pension regime. Those that defer taking the new state pension will also see the increases for late payment slashed to nearly half what it was before and this will no longer be able to be paid as a lump sum.
Auto-enrolment
Up to half a million small and micro employers implemented auto-enrolment in 2016. This will have been a significant burden for some, but in the end it will be a positive move increasing significantly the number of people saving for the long term, supported by their employers.
Although not technically a pension, many saw the Lifetime Isa or Lisa as it was affectionately referred to, as a step towards either a hybrid arrangement or the forerunner for flat rate relief. Neither of these can be ruled out, but until the products are on the shelves so to speak, the appeal of this and the impact of auto-enrolment will be difficult to gauge. The one thing it does mean is that the ‘simple’ label that ISAs have enjoyed over the years, is being eroded with multiple versions with varying rules, contribution limits and exit clauses. They may not quite hit the same level as pensions in this regard, but if the rate of introductions of variants continues, it will not be long before we need Isa simplification.
Annuities
The secondary annuity market appeared to be going full steam ahead for launch in 2017, at least that was what the government hoped, but out of the blue this was suddenly revoked. Although there could have been many wanting to sell their annuities, around 300,000 according to the consultation, the actual value they might receive was clearly in doubt and overall I feel it was the right move to close this down before any damage was done to people’s retirement income.
Flat rate tax relief has been mooted on multiple occasions, but yet again a year goes by and we still have marginal rate relief and tax free cash. I hope that this continues into the future and pensions are not targeted as the cash cow that they have been viewed as for the last few years. We need some stability to try and make sense of all the change we have seen in the last 10 or 11 years or consumers will just fail to save for retirement at all.
I continue to hope for a quiet life, at least in pensions for a few years to come so consumers so advisers and providers can continue to get to grips with all the changes from recent years.
Claire Trott is head of pensions strategy of Technical Connection
