Chancellor, Rishi Sunak, could defer announcing too many “radical” changes to the triple lock and pensions higher rate tax relief in his Autumn Budget, according to Aegon pensions director, Steven Cameron.
He cautioned that the economic and financial implications of the pandemic were “still far from clear” as rumours swirl about possible upcoming alterations from the Chancellor, giving Sunak leeway to “legitimately defer announcing too many radical changes in November”.
Cameron warned that getting rid of the triple lock on the state pension “would be seen as a major u-turn” and “would go down very badly with pensioner voters”, although he added that leaving the formula unchanged “would not go down well with the working age population” who would pay for state pension increases through National Insurance.
The triple lock ensures that state pensions are guaranteed to increase by whichever is highest out of earnings growth, price inflation or 2.5 per cent.
This has led to concerns that strong earnings growth involved in any economic recovery from the ongoing pandemic could send the state pension skyrocketing in the next few years, with Willis Towers Watson warning of a possible 21.3 per cent rise by 2022.
Cameron also warned that ending higher rate pensions tax relief would be seen as a “harsh change” by those who contributed to a pension and paid 40 per cent or more in income tax.
He recommended that, instead of slashing the government top-up from 40 per cent to 20 per cent, the Chancellor could enact a “modest reduction” to 30 per cent, which he argued would allow for the collection of more income tax “without risking higher rate taxpayers thinking twice about their retirement savings”.
Cameron said: “The Treasury’s pre-Budget kite-flying list of possible tax increases or benefit cuts would impact different people and businesses in different ways. While no politician wants to make unpopular announcements, the Chancellor can’t avoid upsetting some groups as he starts the process of getting the UK’s finances back on a sounder footing.
“He does, however, have control over how radical any particular change is, how he mixes and matches in as fair a way as possible, and how quickly changes are brought in.”
— to www.pensionsage.com