In the run-up to budgets and treasury statements, pension commentators often call for ‘a quiet one’ for pensions, usually with a little twinkle in their eyes that says they expect the exact opposite.
But after a recent run of big announcements such as pension freedoms and the tapered annual allowance, it finally appeared our prayers had been answered. This time, there were almost no pension announcements at all.
Despite the rumour mill going into overdrive in the days and hours leading up to the autumn budget, there was nothing on changing pension tax relief to a single rate. Nor was there anything on introducing an age-related system to pay for national insurance contributions cuts for younger workers, or even reducing the annual allowance or tapered annual allowance.
Instead, pensions dodged a bullet.
The only pensions tax change was the confirmation the lifetime allowance would increase to £1,030,000 from next April. Although this had been announced a couple of times in the past few months, such is our (lack of) confidence in the stability of pension tax rules, many doubted it would really see the light of day.
Although this only sounds like a small increase on paper, in practice it can work out as big tax savings for clients. And if they have funds in excess of the lifetime allowance, delaying taking them until the next tax year will save £16,500 in lifetime allowance charge.
Other pension snippets included the news the government has overestimated how many would pay voluntary national insurance contributions to top up their state pension. Despite the government expecting 265,000 people to take up this offer between October 2015 and April 2017, only 13,000 have. There could be several reasons why. Too few people may have known about this, and the details and opportunities it offers could have been more widely advertised.
But even if it did offer a good deal for people, many may not have had the disposable funds at the right time. Amassing the money needed may have been an ask too far.
Even if pensions were remarkably quiet, there were other budget predictions that came true.
As expected, the government responded to the Patient Capital Review consultation by introducing measures to encourage venture capital trusts (VCTs) to invest more funds in higher-risk companies, more quickly. Relief under the schemes will be focused on companies where there is genuine risk to the capital being invested, excluding companies intended to provide 'capital preservation'. This will require a number of VCTs to make changes to their investment models to meet the new rules.
But while this measure comes as no surprise, other measures proved more shocking.
Most notable is a doubling of the limit on the amount an individual may invest under the Enterprise Investment Scheme (EIS) in a tax year up to £2m, provided any amount over £1m is invested in one or more 'knowledge-intensive' companies. This potentially increases the relief to £600,000.
This is an unexpected move. Usually we would expect a budget to cut tax benefits. But this time the government is offering a generous tax opportunity. And granted it’s only to a specific small group of individuals, and only in respect of a specific investment. But it still bucks the trend of tax cuts.
So, pension tax relief lives to fight another day. There seems to be little debate that this – or the next – government will suggest changing it. But for the meantime, advisers and their clients get a little respite from the constant tinkering, and at least an air of stability in which to plan their long-term saving.[vc_separator][vc_column width="1/2"][vc_video link="https://youtu.be/GkjA3DICIEc"][vc_column width="1/2"][vc_single_image image="19166" img_size="full" onclick="custom_link" img_link_target="_blank" link="/wp-content/uploads/sites/2/2017/11/0346.02_Factsheet_BudgetNovember2017.pdf"]