There is a growing expectation that in order to fill the COVID-sized hole in the Treasury’s financial focus, action will ultimately be taken to ease pension tax for both defined benefit and defined contribution pension schemes.
On “tax day”, however, there were no reductions in tax relief with a higher tax rate. The Treasury Department’s announcements and changes focused on technical issues related to: – public services and the age discrimination issues raised in the McCloud case and tax system issues highlighted by the remedial action; the appropriate tax treatment of defined benefit super funds (defined contribution consolidators) once the pension regulator has given the green light for the start of transactions in autumn 2020; and extending the system of dormant assets (the industry-led and government-sponsored system of reuniting people with their financial assets) to include pension assets. These are all important, but with relatively limited implications. No changes to the fundamentals of the pension tax system have been announced or announced.
While the country’s savers and investors may be satisfied with the largely “unchanged” situation, we do not believe that any major future tax changes to the pension tax system will be off the table in any way. It would have been surprising if there had been big changes given the situation with the pandemic. It was evident that introducing complex changes would now have been viewed negatively as bad timing.
The industry continues to assume that there could at some point be a blanket relief for pension savings, with a higher and additional reduction in tax breaks and a possible increase in tax breaks. The idea would be to encourage savings in the broader group by anticipating the chilling effect such changes are likely to have on higher earners, who are most likely to save less on retirement vehicles and diversify into other investments such as ISSAs and real estate. In general, more incentives to save into private pensions are needed, no less for the entire workforce, but adjusting tax breaks for pensions of this kind would generate much-needed billions for the Treasury Department.
The introduction of insecurity for millions of elderly people appears to continue to be a factor in surviving the “triple lock” to state pensions, upon which many depend and will depend in the future.
Some changes, regardless of the difficult situation caused by COVID-19, would have been welcome. Action against non-taxpayers or low-wage earners, those who earn less than income tax, who do not receive tax breaks on their retirement savings that are automatically applied in a net-wage employer system (contributions to pensions are deducted from gross untaxed), would have been welcome. Many in this category are unaware that they are not getting this tax break. However, government action in this area is still expected.
A quiet “tax day” in terms of retirement with more seismic shifts is almost certainly on the horizon.