Everyone tries to second guess the policy makers and George Osborne in particular. What have they got up their sleeves for pensions? Will they scrap tax free cash?
Consequently, in the run up to every Budget there are rumours and counter-rumours as to what changes will likely be announced. Everyone in the world of finance either has an opinion or runs around like Chicken Licken screaming 'the sky is falling in'.
One way you may gain insight into what this government has in store for pensions and savings
To put it simply – listen to what Michael Johnson (no not the American sprinter) has to say on the matter. Michael Johnson is a highly respected pension and saving policy analyst and formerly of the Conservative Party's Economic Competitiveness Policy Group - (so some suggest he has the ear of the current government).
Earlier this year Michael Johnson published a report titled Simplification is the key: stimulating and unlocking long-term saving . In his report he set out a number of proposals to not only give savers greater freedom but to also help reduce the UK's deficit.
Interestingly a number of his suggestions have subsequently been adopted by George Osborne’s pension reform in some form or another. These include:
- · Installing an annual contribution limit for tax incentivised savings (which includes pensions) of around £45,000. George Osborne settled for a limit of £50,000
- · Simplification of the pension system which would encourage people to save more.
- · Employers should be encouraged to promote occupational pension schemes. George has declared that firms will be forced to offer a staff pension by 2012.
- Abolish the requirement to annuitise whilst still protecting the state. In July the government announced that Compulsory annuity purchase at age 75 is to be scrapped under new pension rules.
So you may be wise to listen to any noises Michael Johnson makes via the press in future.
The abolition of high rate tax relief?
There were a number of other proposals which the government has not (yet?) used to form part of the pension reform. These include the ability for savers to access part of their pension fund early as well proposals to extend ISAs to the under 16s.
But perhaps more worryingly for high rate tax payers Michael Johnson highlights the potential savings available to the Treasury if high-rate tax relief was abolished on pension contributions. He points out that these savings present an opportunity to reduce the public deficit. So does this hint that we could see the abolition of high rate tax relief in this term of government? If I was a betting man, given the size of the UK deficit, I know where I’d put my money.