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Could pensions suffer another setback? Experts fear savers' nest-eggs could face tax attack in Autumn Statement

The Chancellor will present his Autumn Statement this Thursday with experts wary the update on the economy will see another raid on retirement saving.
 

Last year's statement saw George Osborne slash the amounts people can save into their pensions tax-free each year to £40,000, and over their lifetime to £1.25million - changes which will come into force from April.

With this year's statement imminent, pension experts are pleading for a grace period for an industry that has undergone wide-ranging regulatory changes in recent years.

Unlikely though it may be, some are concerned that the Chancellor's eye will turn on the 25 per cent tax-free lump sum people can take from their pension pot from the age of 55 and potentially add further restrictions on how much can be withdrawn.

This is Money has rounded up some of the predictions ahead of Thursday's announcement.

Dominic O'Connell, head of tax at Coutts, says: 'The Chancellor might cap ISA 'pots' and/or restrict the tax-free amount that can be withdrawn from pension schemes, although we believe it would be misguided to introduce such measures before the public start to feel the benefits of economic recovery.

'Such retrospective, or at least retroactive, measures could also damage public confidence in both the UK's tax system and savings mechanisms.'

John Fletcher, Director of Financial Planning, Brewin Dolphin, sums up the feelings of many in the industry, saying: 'We don’t expect any changes for the better - our best hope is that Mr Osborne won’t make things any worse.

'The very worst thing the Chancellor could do is to restrict pension savings further. The British public is already losing trust in the pension system, and any restriction on higher-rate tax relief or the 25 per cent lump sum would hugely limit the attractions of pension saving.'

 

Zoe Lynch, partner of pension scheme law firm Sackers, compiled an anti-wishlist for the Autumn Statement which actually calls for changes to the tax free-lump sum - by expanding so it can be taken before the age of 55.

  • Pensions tax relief changes – patience limit reached, no capacity to handle any more changes.
  • Pensions tax relief protection changes – ditto.
  • Auto enrolment changes – no thanks to major changes to eligibility, let’s get used to what we have got.
  • Personal Allowance – tread carefully Mr Osborne, as any changes will affect auto enrolment eligibility too.
  • Tax on the tax free lump sum – pension scheme members love the tax free lump sum so it’s certainly not a vote winner, but allowing a lump sum to be taken before, say, age 55 subject to some form of tax charge as a measure against pensions liberation could be explored.
  • State Pension Age rises – OK, I accept that there will probably be another raft of increases announced but I may have to close my ears as I’m currently in denial that I’ll be working till I’m 70.
 

Tom McPhail, head of pensions advice at Hargreaves Lansdown, believes the industry will get what it asks for this Thursday and no major changes will be announced.

He said: 'We are not expecting anything specific on pensions. I spoke to a Treasury official last week and the line I got from them was that there's nothing planned.

'Of course we've got the annual allowance and lifetime allowance changes coming in in April, so I presume they will still go ahead.

'Any further changes to tax relief rates or tax free lump sum entitlements this week would be almost as unexpected as they would be unwelcome. The Treasury appears to have listened to industry calls for a period of stability for pensions policy and to recognise the importance of a successful launch for the DWP’s auto-enrolment programme.

'Elsewhere in pensions, urgent work still needs to done to address the system failures in converting pension pots into a retirement income. Industry and government initiatives in the New Year should help to address this problem.'

Source:  thisismoney.co.uk

Sam: 2nd Dec 2013 17:00:00

 

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