We don’t know how close we came to seeing further tax claims on pensions in the budget… but how much longer until our luck runs out?
So, the 2018 Budget delivered nothing noteworthy from an immediate pensions perspective. The lifetime allowance increased to £1,055,000 from April 2019, in line with inflation, and there are no changes to the tax relief on pension contributions, the tax-free lump sum on retirement, the annual allowance or the rate at which the annual allowance is tapered for higher earners.
Does that mean we are in for some long-term stability when it comes to retirement planning? The answer is “probably not”. The tax-take from pensions has soared over the last few years, particularly since the lifetime allowance came down from £1.8m. Over the same period, the focus has been on restricting public spending in order to service the public debt. The Chancellor was given some latitude to loosen the purse strings this time around through some unexpected good news just before he made his budget statement. He chose to use this to bolster public spending, particularly on the NHS, whilst bringing forward the date by which the Government would meet its manifesto commitments to increase the personal and higher rate income allowances to £12,500 and £50,000 respectively.
However, there are some dark clouds on the horizon: the Brexit negotiations and the October 2019 date for the UK to leave the EU will lead to uncertainty in financial markets, whilst the continued implosion of some big high street names (Debenhams and House of Fraser to name just two) may lead to reduced tax receipts and some difficult decisions to be made come April 2019.
In fact, the Chancellor indicated in his speech that he would not rule out a further Budget if Brexit and unfavourable economic news required further changes to public spending and taxation.
Some commentators suggested this was a pre-election giveaway budget. Could the government call an election post-Brexit, once the final details of the deal with the EU have been negotiated? If so, then the threat of a Labour government or even a return to austerity with a fiscally-tight, post-election budget could bring tax reductions in pensions tax relief back into play.
All of these factors lead us to conclude that now is the ideal time to future-proof your pensions, in preparation for Brexit and any potential changes to pensions tax legislation.
- A face-to-face session with a senior adviser who will review all of your current and historic pension arrangements, including an explanation of how they work, what you could receive in retirement and the options available to you.
- A review of any unused allowances from prior tax years and an overview of the investment options on offer under your current pension plan.
- A summary of the options available to build up your future pension provision, in order to build up your financial security in retirement.
- Alternative savings vehicles where the lifetime and/or annual allowance have impacted on your ability to make further tax-advantageous savings for your retirement.
- Advice on how to manage and deliver your pension and non-pension savings so that you receive your income in the most tax-efficient manner possible, whether you’re in work or in retirement.
It is always a good time to review your pension arrangements, given their significance to your long-term financial picture. The potentially choppy waters that I talked about above give added urgency to this. If you would like to arrange a consultation, email me on email@example.com.