Specifically, the Budget contained a sentence that was the thin end of the wedge for the tax-free lump sum.
Although the LTA has been abolished, the maximum pension commencement lump sum has been ‘retained’ at £268,275 and will be frozen thereafter, which is sufficient to clear most outstanding mortgages, but the existence of the cap at such a level still represents a kick in the teeth for many.
In a knee-jerk reaction of point scoring, the opposition Labour Party immediately stated it would reverse the abolition of the LTA.
All parties need to agree a framework for pension policy so that the public can have the confidence to commit to serious long-term financial planning, rather than, say, punting it all on a giant mortgage – as many people already do.
The UK state pension is not generous, and the entitlement age continues to be pushed back, as it does with private pensions.
Given the huge tax hikes on unsheltered dividends and capital gains (via curtailment of allowances) coming in the next two tax years, we may yet see people being given further reason to tilt their retirement savings away from boosting pensions as they are nudged towards Isas – which of course costs the state a lot less than pension tax relief.
Isas also allow access at any time and may become the vehicle for those who want to retain some control over when and how they might ease into retirement.
The chancellor would like us to believe he is encouraging retired people back into work, but previous government pension meddling has already inadvertently sent a signal to those in their 40s and 50s that early retirement is now more desirous, because it looks increasingly harder to secure.
Pushing back pension entitlement ages is also an obvious way to reduce shrinkage of an ageing workforce, but has consequences clients and advisers which are likely to become apparent in the years to come.
Martyn Page is the investment director at Worldwide Financial Planning
