The indications were that Philip Hammond was unlikely to be taking the same route as Osborne. Last month, one of Osborne’s more radical proposals, the concept of a “secondary annuity market”, by which pensioners could cash in their annuities, was formally dropped. It seemed that Hammond’s approach might be less radical in shaping pension savings.
So it proved, at least in part. There were no surprises on pensions and no mention, interestingly, of Osborne’s other pensions work in progress, the Lifetime ISA. As we expected, the operation of salary sacrifice, removed for a number of benefits, is being retained for pensions, probably one of the biggest areas of its use. The trailed proposals that action would be taken on pension liberation scams (by which individuals are cold called and persuaded to transfer their pensions to funds of doubtful provenance, some of which appear to be completely non-existent) were mentioned in the Treasury paper, in the same vague terms.
However, there was perhaps more than we expected. The short sentence on pension liberation scams suggested (as expected) “banning” cold calling on pensions, but also hinted at taking some practical steps to allow pension providers (presumably including the trustees of occupational pension schemes) some power to refuse a transfer when they were concerned that a scam may be happening. This would be a great relief to many in the industry who are dealing with the present largely inflexible rules that bestow a right on members to transfer their pensions, even when the transferring trustees of a pension scheme are concerned that it is likely not to be at all in their interests to do so.
The sentence also suggested that attention would be turned to small self-administered schemes (known as “SSASs”). Hammond’s statements were generally more of an overview than intricate blueprint, and it is easy to read too much into a few words, but SSASs, for years the stalwart savings vehicle for owner-managed businesses, might well find themselves under unexpected scrutiny and regulation as a result of these proposals to deal with a very different problem.
There was also a question of whether Hammond would reverse Osborne’s strategy of reducing the annual allowance (level of pension contributions per year not subject to tax) and the lifetime allowance (level of pension fund not subject to surcharge tax on retirement) would continue. No further steps were taken on these, but the level of annual allowance allowed once an individual has taken advantage of Osborne’s “freedom and choice” changes to draw funds out of a pension scheme has fallen from £10,000 (25% of the normal annual allowance) to £4,000 (10% of the normal annual allowance). It is an interesting shift - £4,000 in contributions in later life is not a large amount and is likely to make little difference to pension savings. The change might discourage those considering making use of the “freedom and choice” changes, perhaps even suggesting that Hammond is less keen to encourage pension drawdown than his predecessor.
In a statement where the Brexit referendum loomed large, pensions also got an overseas mention. In broad terms, there are proposals to tax overseas pensions paid to UK tax residents on the same basis as UK pensions. It would seem likely that this is going to be considered in the light of any Brexit, so that present EU constraints on the tax treatment of European pensions complies with whatever our new regulatory regime might be.
It was certainly a less exciting budget for the pensions industry than many in recent years, with the gentle hint of changes in direction. There is much to welcome, particularly the proposal to take action relating to pension scams, but most of all, many of us are simply delighted that pensions taxation isn’t being rewritten wholesale for a change.
Rosalind Connor is a partner in the pensions team at ARC Pension Law