Wednesday’s ‘economic statement’ may pave the way for more significant pension changes, such as to pensions tax relief and the state pension triple lock, in the Autumn Budget, according to Aegon.
Aegon pensions director, Steven Cameron, said Chancellor Rishi Sunak might use his Wednesday statement to announce changes to employer National Insurance (NI), along with a reduction in VAT to stimulate consumer spending, potential furlough scheme extensions and a temporary lifting of the stamp duty threshold.
In the meantime, more fundamental pension changes that have been rumoured, such as changes to the state pension triple lock, are expected to be delayed until the Autumn Budget.
“Deferring decisions until the Autumn will offer Sunak more time to assess how the economy performs over the summer months as lockdown unwinds,” said Cameron.
However, Cameron explained that immediate cuts to employer NI could impact pension contribution strategies.
He stated: “There are some pension implications to consider because where an employer pays a contribution to an employee’s pension, they don’t pay NI.
“This has led to some employers offering ‘salary sacrifice’ arrangements where employees agree to a pay cut in return for a greater employer pension contribution, with the employer passing on their NI saving to the employee.
“If employer NI rates fall, they’ll make less saving on their pension contributions making salary sacrifice arrangements less attractive for them.”
Meanwhile, changes to the stamp duty threshold could encourage retirees to downsize their homes in order to supplement their pension pots, freeing up some family homes in what Cameron called a “generational win-win”.
The topics which Cameron theorised that Sunak might return to in the Autumn Budget included pensions tax relief and temporary or permanent changes to the triple lock state pension system.
There have been calls for changes to the triple lock system from across the industry, amid fears that the current system could see state pensions jump by as much as 21.3 per cent over a two-year period due to the extreme conditions caused by coronavirus.
Another move could see pension schemes weighing in on major government projects, as Cameron explained: “The government has already announced ambitious plans to ramp up investment in infrastructure. Pension funds, which often invest for the long term, may see this as an attractive means of boosting long-term returns.
“However, this mustn’t be taken as a given as trustees must be allowed to invest where they choose in the best interest of their members and beneficiaries, and defined contribution schemes must also make sure they have sufficient liquid assets and be able to provide online valuations to their members on a daily basis.”
Cameron also suggested the Budget might include changes for the self-employed, stating the pandemic had shown the need for them “to be offered support and protections and this could lead to greater alignment between income tax, NI and access to state benefits”.
Other potential targets for the Autumn Budget included tackling the “longstanding issue of how to find a sustainable and fair means of funding social care” and a “fundamental review of how we tax wealth compared to income”.
— to www.pensionsage.com