“With not long to go, and after the Chancellor’s scene-setter speech, much speculation continues to swirl around what may be planned for her second Budget - and not just around income tax. There are also rumours around changes to pensions where the only thing anyone can say with certainty is that most, if not all, of these won’t actually happen. It’s important people remember the positives of pensions and don’t let Budget fears derail their retirement planning.
“For those saving for retirement, pensions offer a range of valuable tax perks. So, there’s always a risk the Chancellor might want to reduce these or direct them more towards lower and medium earners.
“Year on year, some predict reductions in the tax-free lump sum, new maximum tests on what can be saved in pensions, or reform of the approach to boosting personal contributions through tax relief top-ups. Last year, that speculation led some people to rush to take out their tax-free cash, only to regret doing so when no changes were made.
“In the past, whoever was in Government has followed a convention not to make ‘retrospective’ changes. In other words, they’ve made sure individuals who have built up pension entitlements in the past were ‘protected’ from any new taxes on these existing savings. Instead, new rules generally apply only to future savings. So even if there are changes, we hope they wouldn’t affect what’s already been built up.
“What is for sure is that currently, pensions are the best means of saving for retirement. Even before adding in the tax perks, workplace pensions in particular are a fantastic deal, as employees also benefit from valuable employer contributions. Also, if income tax rates do go up, pensions tax relief which is granted at an individual’s highest marginal rate, would go up too, becoming even more valuable.
“Pensions are also good for the economy. Since coming into power, the Government has been focusing strongly on pensions and the billions they have in funds as a source of investment, to help boost the economy and drive UK economic growth.
“The Government recently launched an independent review looking at how to make sure the millions of people who aren’t saving enough, save more adequately for retirement. We’ll keep pushing the Government to help more people make greater use of pensions. We need long-term policies for long-term pension planning, not short-term tax tinkering.
“With all this in the background, we hope the Chancellor remembers the positives of pensions – not only do they help individuals plan for their future, they’re also good for the economy and UK growth. It would be a short-sighted Budget that did anything to damage pensions.”
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