Alistair Cunningham, financial planning director at Wingate Financial, explains why pension freedoms will survive a change in government – as Kay Ingram, director of public policy at national independent advice firm LEBC, outlines her pension demands for whoever is in Number 10 on 9th June.
“A change to pension freedoms would be massively unpopular”
Alistair Cunningham: “A change to pension freedoms would be massively unpopular, and would reduce one thing that any government accepts they need more of: taxation. For this reason alone, I cannot see a rolling back of pension freedoms.
“However, pension freedoms introduced some changes that I think could be unravelled, and the ability to pass down pension wealth to others through nominee and successor flexi-access drawdown accounts looks like the low hanging fruit.
“Relatively few individuals will die under 75, particularly the wealthy, who would tend to have larger pension funds and better average health, so it is not true to say that pensions can be passed down “tax-free”.
“However, receiving a pension fund as a flexi-access drawdown account incurs no immediate taxation, and there is scope to drawdown at lower tax rates than inheritance tax, which is an anomaly with other assets.
“Removal of restrictions of access to pensions, and improvements to death benefits were the two principal changes from April 2015 in my view, but there are still the potential tweaks to some other concepts: we have already seen a proposal to reduce the Money Purchase Annual Allowance to £4,000 and this was only staved off by the General Election.
“For well over a decade each successive government has tinkered with pensions; whilst the above changes are a significant risk I would hope they can simply leave them alone for the next five years.”
Brexit will dominate but our MPs need to remember the savings shortfall
National IFA LEBC Group wants all political parties to commit to make saving for retirement easier.
It points out that the last three governments, Conservative, Coalition and Labour have endlessly tinkered with the allowances for tax relieved pension savings.
The number of individuals required to pay back tax relief, due to the lifetime and annual allowance restrictions is small, as is the total revenue they generate.
Yet the complication of these obscure stealth taxes adds to the cost of retirement planning and acts as a barrier to saving.
LEBC would like to see the abolition of the lifetime allowance for pension savings, and a fairer and simpler universal annual allowance for pension savings, with basic, higher and top rate taxpayers all getting the same allowance.
Kay Ingram: “Future income needs can be met by saving some of today's productivity for consumption later.
“However, failure to address this shortfall could result in a future of higher taxes levied on younger workers, struggling to support an ever growing elderly population, who in turn will face lower living standards.
“The savings ratio, a measure of the share of the wealth we are saving has, according to Government figures, hit an all-time low of 3.3%. The longer term average is 5% and many experts believe it should be at least 8% and ideally higher, if future generations are to be able to retire comfortably.
“Those most at risk of not achieving this aim are those currently in their mid 30s to mid 50s. This group is less likely to benefit from final salary pensions, compared to older workers and will benefit less than younger workers from recently introduced auto enrolment pension schemes.
“The general election gives us a chance to engage with our elected representatives and to make them aware of what matters to us.
“This election and the parliament it produces is likely to be dominated by the Brexit negotiations, but there are still many other issues which we would like our MPs to focus upon. Encouraging more saving is one we think is important.”
What are your views? Whichever Government gets into Downing Street this week, what do you think is the future of pensions in the UK?