Chancellor George Osborne will deliver his third Autumn Statement on Wednesday and speculation is once again rife that he plans to wield his axe on pension tax relief.
But before we get to the ‘will he, won’t he?’ cut the annual allowance question, it is worth establishing the facts.
The Liberal Democrat position, set out in the party’s manifesto, is clear – scrap higher-rate tax relief altogether in order to pay for an increase in the income tax threshold to £10,000.
Labour, meanwhile, wants the Government to review the entire pension tax relief system and look at redistributing some of the estimated £20bn it spends each year trying to incentivise people to put money into a pension scheme.
The Conservatives make no specific mention of pension tax relief in their 2010 manifesto. However, as the lead partner in a coalition Government, the party has already overseen a cut in the annual allowance for tax-incentivised pension saving from £255,000 to £50,000.
The big question now is – will Osborne cut the annual allowance again?
His refusal to answer that question on the Andrew Marr Show on BBC1 this weekend – having categorically ruled out a mansion tax moments earlier – could be seen as an indication that a decision to reduce the annual allowance has already been taken.
It is also worth remembering that the Treasury caught the industry off guard when it set the revised annual allowance at £50,000 in April 2011, with most expecting it would lower the cap to somewhere between £30,000 and £45,000 a year.
By setting the bar higher, the chancellor left himself £20,000 of wriggle room which the Conservatives could use as a bargaining chip with their Liberal Democrat coalition partners when negotiating future cuts elsewhere.
Osborne may now be ready to cash his chip in on Wednesday in order to balance a planned £10bn cut in welfare spending.
Of course, we have been here before. Just 10 months ago, in the weeks preceding the March Budget, reports surfaced suggesting the chancellor was planning to limit pension tax relief by reducing the annual allowance or scrapping higher rate relief altogether.
Nothing materialised then and it is not beyond the realms of possibility that nothing will materialise this time round either.
It is certainly not a decision without political risk. Experts have warned a cut in the annual allowance will hit public sector workers, who tend to receive large employer contributions in defined-benefit schemes, and entrepreneurs, who often make a few large contributions into their pension rather than regular, smaller payments.
But with a mansion tax ruled out, and between £600m and £2bn a year to be saved by cutting the annual allowance, it may be a risk the chancellor is willing to take.
The Autumn Statement could also provide some help for savers in capped drawdown who have seen their retirement incomes plummet on the back of falling gilt yields and a reduction in the maximum amount they can take each year.
Officials from HMRC have met with industry representatives in recent weeks to discuss the issues facing drawdown savers and possible solutions.
The Association of British Insurers, for example, has proposed changing the way the GAD maximum is calculated by using a mixture of long-term corporate bond yields and long-term gilt yields, rather than the 15-year gilt yield currently used.
Insurers say this would better reflect the price of a single-life annuity on the open market and could increase the maximum income available to drawdown savers by between 6 per cent and 12 per cent.
The ABI believes implementing its proposal would only require a change in GAD calculation guidelines, rather than time-consuming legislative reform, and so could provide a quick win for the chancellor this Wednesday.
Osborne could also use his Autumn Statement to launch a more fundamental review into the way the drawdown regime works. A J Bell has consistently called for a policy review to determine whether “slavishly following gilt yields and actuarial principles” remains the most appropriate way to set drawdown limits.
The final obvious outstanding piece of pensions business which the chancellor could address is the delayed white paper detailing plans to introduce a flat-rate state pension worth £140 a week for future retirees.
In March’s Budget, Osborne said further details on the proposal would be published in the spring.
In a written statement published in July, however, pensions minister Steve Webb said the “scale, complexity and importance” of the changes meant the white paper would be delayed until the autumn.
For those of you who are interested, autumn ends on 20 December. So while sources say the white paper is unlikely to be unveiled on Wednesday, its publication should be in very short order.