This year’s Budget contained no nasty pension shocks as Chancellor George Osborne cemented the key areas of focus for a coalition Government that has wasted no time making its mark on policy in this area. Following the recent Office of Tax Simplification report into tax reliefs, Osborne, as expected, launched a consultation on merging income tax and National Insurance.
Osborne told Parliament the move would dramatically simplify the tax system but would not see NI extended
to pensioners or the end of the contributory principle.
Industry experts have been quick to speculate on the possible implications of the move, with some calling into question the future of salary sacrifice and others suggesting the consultation process could be used as an excuse to scrap higher-rate relief.
However, as Institute for Fiscal Studies director Paul Johnson suggested in a recent Parliamentary evidence session, Osborne’s restrictions mean the consultation will be limited in how far it can go down the “very long escalator” towards a full merger.
Elsewhere in the Budget, Osborne was quick to give John Hutton’s public sector pensions report the Government seal of approval. The former Labour cabinet minister has left many of the big reform decisions to the Chancellor, such as contribution levels, accrual rates and the discount rate used to calculate contributions. These numbers will have a huge impact on the costs and fairness of the reforms.
Osborne also confirmed Government plans to introduce a flat-rate state pension of around £140 a week. Again, there are a number of questions to answer, such as ensuring those who have contracted out are not overly rewarded and those who have built up significant second state pensions are not hit too hard. But the general thrust of the Government’s proposal should be warmly welcomed, not least for removing some of the disincentives to save which could have undermined the Nest and auto-enrolment reforms.
In this issue, Safe Home Income Plans director general Andrea Rosario explains why she believes the flat-rate state pension will make it easier for advisers and clients to assess the benefits of equity release.
The Government’s annuitisation reforms are introduced this week and Scottish Life and LV= go head to head on how quickly advisers and providers should be embracing the new flexible drawdown regime.