The pensions industry is acutely aware that the previous chancellor, George Osborne, was keen to make use of this source, encouraging the acceleration of tax receipts by deregulating pensions so that funds were more easily moved into the taxable, non-pensions environment; suggesting (but not quite carrying out) a move to earlier taxation of pensions (on investment rather than receipt); and finally developing an ISA that was seen as a rival to pension investment.
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Chancellor Philip Hammond appears to have a different attitude to pension schemes, at least this in this Budget. The treatment of taxation has hardly changed, with the lifetime allowance (total tax-efficient savings per individual in pension schemes) rising by £30,000 to £1.03m. However, this in itself is quite remarkable – it is the first rise since 2010, and the period since 2011 has seen a continued drop in the allowance from a high of £18m. Adult ISAs, a long time favourite of Mr Osborne, have not been given any further increases. Mr Hammond does not seem particularly interested in extracting more taxation from pension schemes.
However, the chancellor does appear to be viewing pensions with interests. Both in his speech, and in the budget paper, he noted the importance of pension funds as investors. The government has also published today its response to its consultation on “financing growth in innovative firms”, and in this has noted the particular challenge that pension schemes (both where investments are chosen by trustees and by individual investors) are generally less interested in illiquid and riskier investments, meaning that these very significant funds (around £2trn) are not invested in start up or newer, innovative businesses.
The chancellor’s solution appears to be that the guidance of the Pensions Regulator to trustees of pension schemes will note that they can invest in assets with only a long term return, rather than short term benefits. It is notable that he has stopped short of the direct regulation many have apparently suggested, and is relying on Regulator guidance, with no standing in law, pointing out that these investments are possible, not necessary. Other proposals, such as a working group of institutional investors to “unlock” pension investors, may have more of an impact in the longer term but, for all of the fanfare, it does not look likely that the chancellor is taking significant steps.
However, the budget does at least suggest that pensions taxation is not in the crosshairs of the Treasury as it has felt in recent years. The importance of pension funds as investors, to grow and develop the economy may well be the focus of pensions in future budgets. As an under-recognised issue, this new emphasis is most welcome.
Rosalind Connor is a Partner at ARC Pensions Law