Surprises Spreadsheet Phil could have in store

Surprises Spreadsheet Phil could have in store

Pensions seems the most likely department for the chancellor to raid in the Budget in a bid to meet the £20bn of NHS funding the Conservative Party has promised.

Philip Hammond, who is due to deliver the Budget at 3.30pm today (October 29), is widely expected to announce a reduction in the pensions annual allowance from £40,000 to £30,000 or £20,000.

"Often seen as a soft target by HM Treasury, pensions could play a starring role in funding the black hole left by the government's pledge to help the NHS," said Austin Broad, group head of advice at AFH Wealth Management.

"A complete overhaul, like chopping pension tax relief altogether, would be way too bold given Brexit uncertainty and the political fallout of yet another U-turn.

"However, cutting higher-rate relief and tinkering with the annual and lifetime allowances is firmly on the agenda."

But Mr Broad has warned any cuts or increased complexity, "risk sending the wrong signal, scaring savers".

Tom Selby, senior analyst at AJ Bell, said a pension annual allowance cut would risk a backlash among public sector workers.

“While very few private sector workers would be constrained by a £20,000 yearly allowance, hundreds of thousands of public sector staff would likely be caught,” he said.

“Cutting the annual allowance could undoubtedly raise valuable short-term revenue to help fill the £20bn NHS funding gap.

“In doing so, however, he would risk a backlash from trade unions across the public sector – including, ironically, those representing senior NHS employees,” Mr Selby added.

There have been reports the chancellor will announce changes, which would mean retirement pots could invest in high-growth UK technology companies – or 'patient capital' investments.

Steven Cameron, pensions director at Aegon, said: "The government seems keen to use pension schemes as a source of 'patient capital' investment to help innovative firms secure long-term investment. 

"Patient capital investment offers the potential for high returns for those prepared to take a risk with newer, innovating companies and who are prepared to invest for the longer term."

He said: "While an element of capital investment may be worth considering in some schemes, this must be part of a diversified approach and should be for trustees and scheme providers to consider, with no mandatory requirement. 

"The key aim of pension schemes must remain providing an income in retirement to their members, not as a compulsory flow of investments to finance parts of our economy."

It has been assumed the chancellor has little room to manoeuvre in this Budget, given the government's NHS funding commitment and the costs of the UK's looming departure from the European Union.

It remains to be seen whether Mr Hammond will be able to announce any further developments with regards to Brexit negotiations when he stands up to deliver his Budget later today, or how much more he has set aside to spend on Brexit.

But Hetal Mehta, senior European economist at Legal & General Investment Management, observed Mr Hammond has more "wiggle room" than previously believed.