Every year there is pre-Budget speculation as to what might happen to pension tax relief. Given the repeated cuts to lifetime and annual allowances in recent years, it always seems a bit of a banker that further change is in the pipeline.
This year we had a brief respite (and indeed some ideas for expanding tax relief, of which more below) but it may well be temporary.
So why did the Chancellor hold off for now and what might the future hold?
The key to understanding the Budget is a bit of Treasury “sleight of hand” when it comes to how government borrowing is measured. In the run-up to the Budget, the Government decided the money which housing associations borrow would no longer count as government borrowing. As a result, the Chancellor suddenly had an extra £5bn per year to play with while staying within his headline borrowing targets.
Given that recent changes to pension tax relief have typically raised between half a billion and a billion pounds a year, you can see why a £5bn a year windfall meant difficult choices on tax relief could be put off.
But the overall health of the economy remains weak and the Treasury downgraded its growth and revenue forecasts.
With steadily growing pressure on public spending from an ageing population, the need to spend money on Brexit, together with the cost of the “events” which affect any government, we should continue to work on the assumption tax relief limits are likely to be lower in the medium term.
The one exception to this was the interesting report on “patient capital” published on Budget day. The idea of patient capital is that we need more money to be invested for the long term in business start-ups and innovation by investors willing to remain invested and willing to take a degree of risk.
The industry taskforce which looked into this issue suggested that one way to get money in would be to relax the limits on tax relief for those who invest in patient capital vehicles.
The report specifically mentioned higher earners caught by the tapered annual allowance who may be limited to pension investment of £10,000 per year and who might well have money available to invest in this sector as part of their overall portfolio.
Clearly this would be something for more sophisticated and well-advised savers, but it could be of considerable interest to those now bumping up against tax relief limits.
The Treasury is setting up a working group to look at the barriers to savers in defined contribution pensions investing in illiquid assets and it seems likely more favourable tax treatment will be one avenue they will explore.
So while overall limits on pension tax relief remain likely to fall, there is still a chance more niche investments of this sort could receive more favourable treatment within a pensions wrapper.
Steve Webb is director of policy at Royal London