The Labour Government’s first budget, last October, packed quite a punch for the pension world and it’s fair to say that some investors are still feeling a bit concussed today, trying to understand how the proposed changes to Inheritance Tax and the Non-Dom regime will affect their private pensions. It therefore may have surprised some people that the Spring statement on 26 March was pretty much silent on the subject of pensions, says Steve Berridge, technical services manager at IFGL Pensions.
To be fair to the Government, they had announced on 22 January that their consultation on the subject of Inheritance Tax and pensions had closed and that they would announce the results and full details of the changes later in the year. Given that the consultation received hundreds of responses from industry and tax experts highlighting grave concerns, they have a good amount to wade through in the meantime.
The problem however is that the media in particular love to speculate. We saw before the October budget people withdrawing tax-free cash sums in haste, following rumours spread in some quarters that the Government was likely to remove the 25% tax-free cash sum allowance from defined contribution pensions. In the event it did no such thing and this left some people pleading with pension providers to take those lump sums back (to no avail when HMRC confirmed this was not an acceptable action).
Having announced several controversial changes in the first eight months in Government, such as the changes to Agricultural Property Relief and the abolition of the Non-Dom regime, people are naturally worried that bad news is likely to be in store for pensions. In fairness some bad news has already been provided in the form of the above-mentioned proposal to bring discretionary pension schemes within scope of IHT for the first time. But, at the moment, the issue is that no one knows what final form these changes will take and that makes financial planning particularly tricky.
The Spring Statement today did include a line that the Government is looking at options for reforms to Individual Savings Accounts that get the balance right between cash and equities. It also confirmed that for its new residence-based regime, it will continue to work with stakeholders to ensure the new regime is internationally competitive. A hint perhaps of a recognition that some fine tuning is required.
So today was a fairly quiet one for the pension industry but we really do need to see some more detail on the changes we know about soon, because as the saying goes, “it’s the not knowing which kills”.
By Steve Berridge, technical services manager at IFGL Pensions
