Will Budget be trick or treat today for pensions savers?
IT’S never nice to see a grown man cry. Even when it’s Halloween, and he might well be frightened.
But I worry when it’s the Chancellor of the Exchequer, Philip Hammond, who delivers his Budget today.
It’s normally delivered on a Wednesday, but in order to avoid the press having a field day, they moved it forward two days to avoid Hallowe’en. This week is scary enough, without hearing what they’re going to do to the price of a litre of petrol or a pint of beer.
Speaking to the IMF conference in Bali the other week, that old wizard Philip said tax relief on pensions has become ‘eye-wateringly expensive’ and, while those tears didn’t actually come in public, it sounds like the poor man is somewhat distraught.
This has led to speculation that later today he may wave his wand and make cuts to higher-rate pensions tax relief, in his efforts to raise £20 billion for the NHS by 2023.
Well listen Phil, it was previous conservative Chancellors such as George Osborne who made the cuts. So, as we say in Northern Ireland: dry your eyes.
However, the cost of pensions tax relief to the Treasury is still £39bn a year. It’s a big fat pumpkin, and one that Philip would love to slice into. If he does, it won’t be a pretty face he cuts, it could well be a scary one.
But wait! Who is that flying in from left field on her broomstick? It’s good old Baroness Ros Altmann, former pensions minister and always the voice of reason, to smooth our worries away.
She says that cuts to mainstream allowances are unlikely – they would be massively unpopular, and provoke a backlash by the public and the tabloids. Nonetheless, many other pensions wizards are spooked.
Whatever happens this afternoon, pensions reliefs remain a possible target for government vampires in coming years. And so does the state pension.
Here’s the point: maybe ask your local pensions adviser about starting a personal pension, as a second strand of saving alongside your state pension – if you haven’t started one already. Here’s why.
The clever boys and ghouls of the Government Actuary Department recently predicted that, unless action is taken, the National Insurance Fund, which pays our state pensions, could be bled dry by 2032. Now, there is an additional mechanism called the Treasury Grant, which could provide some funding to help spin things out for a while, but only until 2040.
Government thinking also suggests increasing our National Insurance contributions by 5 per cent could help shore up the fund, and that people already taking their state pension could make further NI contributions as well.
Did you get that? Asking retired people to continue contributing to the state pension?
Bit like handing out five jelly babies to each child on your doorstep this Wednesday, then asking for two of them back.
One positive certainty is that the Government does want to encourage people to keep saving for their old age – to reduce dependence on the state pension, and reduce the nightmare of ‘pensioner poverty’. Tax relief is the major incentive for that saving, so tinkering with pensions could be counter-productive.
But hold on! Here is chief wizard Philip from his mountain-top lair in Downing Street again. “I don’t like raising taxes, but I also don’t like out of control deficits.”
Not so, says Ros Altmann, who knows that while they may try, new brooms don’t always sweep clean. “Ongoing tinkering ‘salami-slices’ away the benefits of pensions. We need a period of stability, so people can plan.’
So will it be trick or treat today for pensions savers?
Can’t wait to hear, later on. It’s driving me bats.
:: Michael Kennedy and Shaun Doherty are independent financial advisers and pensions specialists, and can be contacted on 028 71886005 . Further information on our Facebook page “Kennedy Independent Financial Advice Ltd” or our website www.mkennedyfinancial.com