After pension reforms in 2015, Chancellor of the Exchequer George Osborne will not be announcing further pension changes in this year’s Budget.
It was revealed in early March that he was planning to either alter or end tax relief on pension contributions. The tax relief allows for some of an individual’s earnings that would be taken by the government in tax to go into their pension fund instead. Under the current system, pension savers receive the pension tax relief at the same rate as their income tax; therefore, basic rate taxpayers receive pension tax relief at 20%, and higher rate taxpayers at either 40% or 45%.
Under proposals considered, the upfront tax relief on pensions would have been scrapped (for savers, the move was worth an estimated £21bn), with pension pot withdrawals being made tax free. The Treasury proposal was to introduce arrangements similar to an ISA, but with no tax relief on contributions. Instead, withdrawals would have been tax free. The proposals would have given significant short-term economic boosts to the government – but at the expense of lower tax revenue later on.
The measures would have helped to encourage those on lower earnings to save more for their pensions and retirement, as essentially they would have saved an extra £1 for every £4 they saved themselves. Although Mr Osborne and the government have sought only to encourage savers and saving – in this case, the current economic climate was not the right time for such changes. Additionally, with changes to pensions such as auto – enrolment still getting started, once again the Budget of 2016 was seen as not the right time to introduce the measures.
An alternative proposal suggested was to set a flat rate of tax relief. Although this would have benefited basic rate taxpayers, this would have been unpopular with higher earners, as their tax relief would effectively have been cut.
In the run up to the Budget, those plans were scrapped. According to Shadow Chancellor John McConnell, Mr Osborne was “yet again ducking a big decision”, and had failed to address pension inequality. Supporters, however, stated that the Chancellor was right to protect existing tax relief. Further, the proposals brought with them additional burdens on employers, and carried certain economic risks.
Either way, the proposals will now no longer be part of the Budget. Following the drastic pension reforms of 2015, supporters claim that yet more drastic reform is unnecessary.
Any further alternations to Pensions would happen amidst economic uncertainty, a faltering economic growth – and the spectre of the EU referendum in June. As such, the Chancellor, in seeking economic stability, could be said to be economically responsible – even if the changes that did not materialise could have been beneficial for many.
Although those pension plans were scrapped, amidst economic uncertainty – what is certain is that Mr Osborne will probably have to oversee another round of government cuts and austerity measures as economic growth falters. Those will prove unpopular and divisive – just as the pension proposals were.
Further, after some uncertainty regarding new pension changes and reforms and increasing choices for pensioners – the good news is that there will not be any further changes involving yet more choices or factors to be considered regarding pensions. After much change to pensions in recent years, pensioners and those nearing retirement can now be assured that their pension arrangemetns will remain unaltered and unchanged (for now, at least). After much instability and change for pensions over the last few years – the stability and continuity is welcomed for those consiudering thier pensions or retirement.