Could more changes be on the way for pensions? - Pensions - News - Moneyfacts


Could more changes be on the way for pensions?

Could more changes be on the way for pensions?

Category: Pensions

Updated: 10/07/2015
First Published: 10/07/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

It doesn't seem as though we've had time to get used to the last set of pension reforms, but if this week's Budget was anything to go by, we could be in for some more changes…

"Radical change" not out of the question

In his speech, Chancellor George Osborne said that he was open to further "radical change" for the pensions industry, specifically suggesting that pensions could be treated like ISAs. His idea was that savers could pay into their pension from taxed income and receive a top-up from the Government, and then take it out tax-free when it's needed to be used as pension income.

However, this isn't yet policy, with Osborne saying that this idea (and others like it) would need careful consideration before anything went ahead. As such, a Green Paper is being published for consultation, giving everyone involved the time to mull over the proposals, a move that has been welcomed by the industry.

Cut to tax relief

However, there was one aspect of pension change that appears set in stone, and that's the reduction to the level of tax relief on pension contributions for higher earners. Currently, people can contribute up to £40,000 a year to their pension tax-free, but from April 2016 this tax relief will be limited to £10,000 per year, based on earnings.

However, while the majority of workers won't be affected, there are still concerns that this could dis-incentivise pension saving, particularly when combined with the reduction to the lifetime allowance (as announced in March's Budget). It also doesn't take into account the possibility that some people may earn a lot but don't have any pension savings, so limiting them, particularly later on in their working career, could mean they're unable to amass a suitable pot.

As Tom McPhail of Hargreaves Lansdown points out, "anyone caught by this restriction, who isn't fortunate enough to already have enough in their pension, is going to find building up a decent retirement income has now become hugely challenging". Andy Cumming of Close Brothers Asset Management added that "we need to be encouraging greater pension saving across the workforce, and limiting the amount one section can set aside will not help build a nation of savers… The shrinking lifetime allowance has already penalised long-term pension saving".

What's ahead?

So, just what else could be in store for the pension system? Who knows! One thing's for sure – nothing should put you off saving for your future. Be it through a workplace pension, ISA or (ideally) a combination of vehicles, make sure to save as much as possible and you'll hopefully get the retirement income you're hoping for.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

Related Articles

Savers more worried about looks than pension

When you think of getting older, what’s the first thing that comes to mind? For many, it’ll be fears about their looks – but they should really be concerned about their financial situation.

Pension funds defy uncertainty with strong returns

Economic uncertainty has been a persistent theme in recent months, but happily, not every area has been negatively impacted. Indeed, our latest figures show that the pension sector has bucked the trend and posted unexpectedly strong returns.

Do you know what a pension is?

Pensions are something we all need to get our heads round, and we’re continually told that it’s important to start saving into one from as early as possible. Yet new research suggests that this advice could be falling on deaf ears.