Budget 2017: no fireworks
Philip Hammond’s March 2017 Budget was short of spectacular announcements: pensions tax relief was left alone for now as were limits on the lifetime allowance, annual allowance and the tapering annual allowance but these may be revisited in the autumn. The cut in the money purchase annual allowance (MPAA) from £10,000 to £4,000 was confirmed despite huge opposition from the pensions industry. The self-employed will pay more in national insurance contributions and foreign pension abuse has been targeted.
Kate Smith head of pensions at Aegon comments: “A common pension scam is to encourage people to transfer their pension funds overseas even though they have no intention of living abroad. Other people do this to deliberately avoid paying UK tax. The new 25% tax charge should help stamp out these practices giving people greater protection from pension scams. This tax charge won’t apply if people are genuinely moving overseas and want to take their pension with them.”
Tom Selby, senior analyst at AJ Bell, adds: " Qualifying overseas recognised pension schemes (QROPS) transfer requests on or after 9 March will be hit with a 25% tax charge.
"QROPS were originally designed to make it easier for people leaving the UK to retire to another country and take their pension with them. However, the structure has increasingly been manipulated by those looking to artificially cut their tax bills.”
This is estimated to bring in an overall £315m over the next five tax years.
Andrew Tully, pensions technical director, Retirement Advantage, explains: “This appears to be a significant shutting down of the QROPS market, restricting overseas transfers to situations where people have an overseas employer’s scheme or the QROPS is in the EEA. The government has been increasingly concerned about the use of these schemes for the past few years and this appears a major move to reduce their use.”
There was also a dividend allowance cut from £5,000 to £2,000 in April 2018 which makes tax planning and using ISAs and SIPPS to the full even more important."
In an aim to make sure people pay similar amounts of tax, Philip Hammond has launched a review of how the different ways of working are taxed. The Chancellor has also announced an increase in the national insurance class 4 rate paid by the self-employed up to 10% next year, and 11% the year after – bringing it more in line with employees).
Rachel Vahey, product technical manager at Nucleus, said: “These increases will put pressure on the self-employed leaving them with less disposable income. This comes at a time when it’s becoming apparent fewer self-employed are saving for their later life income – out of 4.5 million self-employed, the DWP estimates an average of only one in seven paid into a pension last year. If these individuals have less take-home money available to save, this increases the danger they will reach later life with little or no savings.”
The results of the State Pension review will be published by 7 May 2017, the aim being to ensure that it remains “fair and sustainable across the generations”.” Lesley Harrold of Norton Rose Fulbright also pointed out that master trusts – the tax registration process will be amended for master trust schemes in alignment with TPR’s new authorisation and supervision regime. The aim is to boost consumer protection and to improve compliance.”
Summing up the Budget, Malcolm McLean, senior consultant at Barnett Waddingham, said; “We are still uncertain of the future direction of travel for retirement savings, and what further action the government is going to take to combat pension scams. It is particularly disappointing that the government doesn’t propose to change tack on the lower money purchase annual allowance or with the tapered annual allowance for higher earners.
“The increase in national insurance contributions for the self-employed is probably justified by the fact they now have entitlement to the full new state pension rate, currently £155.65 per week.
“However, the Chancellor may have missed a trick with the lack of plans to encourage greater private pension saving for the self-employed. An opportunity perhaps could have been taken to bring in a form of auto-enrolment, with minimum contributions equating to at least an increase in line with the extra national insurance contributions.
““The extra £2bn for social care in England, over the next three years to improve social care is obviously welcome given the problems currently experienced in the NHS. We will be interested to see the range of options for longer term solutions to be set out in a Green Paper and how that might interface with pensions.”
Stephanie Hawthorne has been editor of Pensions World since 1989. An honours law graduate of King's College, London and winner of 10 first and second prizes for pensions, property and insurance journalism, Stephanie has been a journalist for 25 years. Starting her financial career as a researcher/marketing specialist for a national independent financial adviser and subsequently a leading life office, she then moved on to Insurance Age, Planned Savings and Financial Times' Money Management (deputy editor). Stephanie has contributed articles to the Financial Times, Mail on Sunday, The Times, The Sunday Times, The Sunday Telegraph and The Observer, as well as numerous magazines. Among her other editorships are Counsel: The Journal of the Bar of England and Wales (from 1997 to 2007) and Charity World (managing editor, 1993 to 1997).