Welcome kickstart jobs scheme prioritises the young and could also kickstart their pension
Stamp duty holiday in England and Northern Ireland could help younger families while also opening the door for retirees downsizing to supplement their pension
State pensioners left waiting till Autumn Budget to find out fate of triple lock
And no Indications of whether the pensions tax relief system may be facing radical reform
Kickstart Youth Jobs Scheme
“The kickstart scheme which will temporarily supplement wages for many under 25s gaining employment in additional jobs will be a welcome boost for this age group who in financial if not health terms have been particularly adversely affected by the coronavirus pandemic. For some, while perhaps not front of mind, it could also offer a welcome kickstart to their pension.
“Employers are required to automatically enrol employees into a workplace pension if they are aged 22 or above and earning at least £10000 a year. The minimum wage for a 22 year old working the minimum 25 hours would exceed £10,000 a year and if working 35 hours a week is £14,924. So as well as employment, kickstarters could see contributions of up to £700 being paid over a full year into what for many will be their first pension. This could grow to a substantial sum by retirement, helping avoid these younger employees falling behind in their savings.“
Stamp duty change and downsizing
"The temporary lifting of the threshold for stamp duty on house purchases in England and Northern Ireland till March 2021 will be a welcome boost to those looking to buy their first home and to families looking to move up the property ladder. It also opens the door to retirees who are keen to downsize to free up equity in their homes to supplement pension pots, but who are put off doing so because of the bite stamp duty on their downsized property would take out of their gain. Encouraging downsizing also frees up larger family homes, creating an intergenerational win-win. Those in Scotland and Wales will be looking to their devolved administrations to follow suit.”
Possible measures coming this Autumn
“As expected, the Chancellor did not reveal what further surprises he may have in store for the next phase of his plans which will be unveiled in his Autumn Budget. But there are a range of possibilities where we’d welcome advance consultations to allow proper consideration of best approaches while avoiding unintended consequences. This includes the state pension triple lock, a review of the pensions tax relief system, aligning income tax and NI between employees and the self-employed, any recalibration of wealth taxes or a drive to encourage pension funds to invest more in long-term infrastructure projects. There’s also the extremely overdue matter of finding a sustainable solution to social care funding. While this will be led by the Health Secretary, the Chancellor will no doubt have a keen interest in how the solution impacts on both Government budgets and individuals’ taxes and finances.”
Temporary or permanent changes to the State pension triple lock
“There has been speculation over the sustainability of triple lock under which state pensions increase at the highest of price inflation, average earnings growth or 2.5% a year. This was set in a very different pre COVID-19 era when price and earnings growth tended to be relatively stable year on year. Blindly following that formula now as we move through and out of the coronavirus crisis with huge distortions to average earnings expected could create bizarre results which were never intended and which would fail any test of intergenerational fairness.
“If as a result of the furlough scheme and the recently announced new job measures we see a sharp dip in average earnings this year followed by a quick and full recovery the next, the triple lock would still grant pensioners a 2.5% minimum increase next year and potentially put them on track for a double digit increase in 2022, while those of working age might have simply regained their pre COVID-19 earnings. The Chancellor will have to make a call as to whether to suspend the earnings related element, adjust it to smooth out sharp fluctuations or to make a more fundamental change, with some people viewing it as overly generous. But after prioritising younger generations in this Summer statement, the Chancellor will have a careful balancing act to perform to sell changes to state pensions to older generations.”
Pensions tax relief
“The Chancellor also remained silent on the speculation that he may be planning reforms to the pensions tax relief system. As our population ages, the affordability of state pensions is put under pressure, making it ever more important that people save for their own retirement through pensions. But the problem is in the short term, contributions to pensions ‘cost’ the Exchequer as they reduce people’s income tax bill. Any changes need to be very carefully thought through to make sure they don’t reduce the incentive to put money aside for a retirement that may be decades away. For example, moving to an ISA style regime for pensions, as was recently proposed by the Centre for Policy Studies, could seriously damage the success of automatic enrolment and undermine the pension freedoms which have offered people more flexibility over how and when they take their retirement income.”
Wealth taxes
“As the Chancellor moves in future to put the nation’s finances back on a sounder footing, questions will be asked around how to share the costs between different generations and sectors. This could prompt a fundamental review of how we tax wealth compared to income.”
Infrastructure Investment using pensions
“The Government has again confirmed 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.”
Social care funding
“With those in care homes being amongst the worst affected by the COVID-19 crisis, it’s imperative that the Government tackles the longstanding issue of how to find a sustainable and fair means of funding social care, guaranteeing our most vulnerable elderly dignity in later life. This is likely to require a sharing of costs between the Government and individuals, based on their wealth. What’s vital is that people have certainty over what they’ll be expected to contribute so they can plan ahead and protect their inheritance aspirations.”
Self employed
“The numbers of self-employed have grown dramatically in recent years and we’ve also seen the emergence of the gig economy.
The COVID-19 pandemic has shown the need for both employees and the self-employed to be offered support and protections and this could lead to greater alignment between income tax, NI and access to state benefits.”
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