Malcolm McLean: Will the Budget put an end to pension policy limbo?

Urgent clarification is still needed on issues such as the state pension and tax relief

There are various ways of describing it: kicking the can down the road, rolling the ball into the long grass, or putting the papers into the too-difficult tray. Yes, I am talking about the current reluctance of Government ministers to reach definitive conclusions on major policy issues, seemingly preferring to leave them for further consideration at an unspecified later date.

It is notable, for example, that the question of how best to provide and fund long-term care appears to have disappeared off the Government’s agenda for now.

This is definitely one for the too difficult tray, following the big row that erupted over the so-called dementia tax. But surely it is something that will have to be brought back into focus at some point sooner rather than later?

Similarly, the proposed increase in National Insurance for the self-employed. The idea revealed in the spring Budget ran into the buffers following the outcry it provoked from “traditional Tory voters” and forced an ignoble U-turn within days of it being announced.

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In my view, the increase was entirely justified, given the not inconsiderable extra state pension the self-employed will now receive under the new system. Had the proposed NI rise been announced back in 2008 when plans for the new state pension were being formulated, the Government might have got away with it much more easily. As it is, any increase now seems to have been put on hold for the time being. But for how long?

And in regard to the state pension itself, many of the suggestions made in the Cridland report have been left in the air. These include his recommendation for a mandatory mid-life career review, a suggestion that the triple-lock be scrapped and a rejection of any sort of early retirement option.

Apart from agreeing to the main recommendation to bring forward the proposed increase in the state pension age to 68, the Government’s view and intended action (if any) on the rest of the report remains unknown.

Pensions tax relief is yet another area where you feel the Government wants – and perhaps needs – to make changes to cut back on hefty public expenditure but is reluctant to act.

A single flat-rate of relief is something they have flirted with in the past but now seem paralysed from pursuing as it would involve the abolition of higher rate tax relief and, again, might be seen as an attack on their traditional supporters.

Although a cash-strapped chancellor may want to reduce the hefty £35bn a year spent on contribution tax relief in his forthcoming Budget, he is more likely to be disposed to leave the rate of relief alone and implement further reductions in the annual and lifetime allowances instead. Not a desirable or sensible thing to do but something we may have to live with.

We are clearly in a bit of a limbo state at the moment and there is much uncertainty surrounding the future of pensions and how they might develop in the years ahead.

Grasping nettles or, if you prefer, taking the bull by the horns, are certainly not approaches likely to be adopted by a minority Conservative Government intent on clinging to power at all costs while trying to find a path through the myriad challenges of Brexit.

A resurgent Labour party, should they come to power, will have their own ideas and plans as to how to revitalise pension saving, but they too may get embroiled in Brexit and find that being in Government is rather more constraining than being in opposition.

As the dust settles on the party conferences, the next significant date in the political calendar is the autumn Budget on 22 November. Will that fill any of the current policy vacuum or at least give a firmer indication of the future direction of travel? Will pensions even feature at all? We shall have to wait and see.

Malcolm McLean is senior consultant at Barnett Waddingham

 

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