Steven Cameron, Aegon’s Pensions Director, is predicting ‘Spring Statement silence’ on pensions, but warns that any further pressure across Government department spending could lead to greater scrutiny of the state pension age or the triple lock.
He said: “Following Rachel Reeves’ inaugural Budget last November, the upcoming Spring Statement on 26 March offers the Chancellor an opportunity to give an update on the UK’s finances, informed by the latest OBR forecast. While the Autumn Budget is the likely place to announce tax reforms, and details of the three-year Spending Review are expected in June, Reeves may use the Spring Statement to set the ‘mood music’ for the future direction of travel on tax and spending policy against the overriding economic growth agenda.
“If the OBR’s report and other budgetary pressures are worse than anticipated, we can’t rule out a ‘rabbit in the hat’ review of the state pension. There’s already an ongoing review of the state pension age and government finances may mean it needs to increase further or faster. We also can’t ignore the state pension ‘triple lock’ which has proven costly and unpredictable in recent years. While the Government has currently committed to keeping it, the formula might be adapted. Instead of annual increases being the highest of earnings growth, inflation, or 2.5%, a smoothing mechanism could be introduced. Pensioners might receive an inflation increase as a minimum, and if, over the previous three years, wage growth has on average been higher than inflation, they could receive an additional uplift. This would protect pensioner purchasing power and make future costs less unpredictable.
“Elsewhere, announcements could have ‘second order impacts’ on pensions or pensioners. One possibility is an extension of the freeze on personal allowances which will drag even more pensioners into paying higher income tax rates. While the Spring Statement is likely to ‘pass on pensions’, the Government has many radical plans for pensions which we’ll hear more of in the coming months. The Pensions Investment Review is likely to lead to workplace pensions placing more of their members’ funds in investments designed to boost UK economic growth, which could also deliver better returns for pension savers. And this summer’s Pension Schemes Bill will include new measures to ensure all pensions are offering good value for money as well as plans to bring together small pension pots individuals may have left behind when changing employers.”
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