The 26 November Budget: Implications for Pension Savers

The current system of tax relief on employer and employee contributions and the gross accrual of investment returns within pension schemes – exempt from income or capital gains taxes - continues, as do the current limits for drawing pension commencement lump sums – “tax free cash”. 

The Chancellor has heralded future changes to the tax and National Insurance regime governing “salary sacrifice” contributions – but these will not take effect until after 6 April 2029. The imposition of IHT on residual pension benefits on death on or after 6 April 2027 (if not left to a surviving spouse), announced in last year’s Budget will proceed, although the detailed rules are still being argued. 

The Budget has, however, confirmed

1. the direction of “fiscal travel” of this Government and its backbenchers;
2. That most earners and savers will have reduced net of tax income in the coming years and that
3. Investors’ net returns from directly held investments – cash, stocks, shares or property are likely to fall.

In consequence of the latter, the advantages of saving through pension funds have been enhanced.

As a result of the Government-stimulated months of pre-Budget rumours,  some pension scheme members have chosen to accelerate their withdrawals of tax-free cash sums to protect these.  In certain cases, the rumours have stimulated withdrawals, rather earlier than would otherwise have been the case.    

During this process, everyone experienced the length time taken to obtain information from external pension providers,  investment managers and insurance companies - and we should all learn from this experience.

Lessons for the future include:

1. Concentrating pension resources in the most flexible of formats gives greater control. 
2. Therefore, collecting pension arrangements into member directed formats (SSAS’s or SIPPs) is highly desirable and should be arranged as soon as possible – provided that no penalties, significant extra costs or loss of guarantees are incurred..
3. For those who could benefit from salary sacrifice arrangements, there are four tax years remaining in which such arrangements can be operated without penalty.  Full advantage should be taken of this.
4. Opportunities for proper planning,  without the threat of deadlines should be seized. 
5. Over the coming year, there are unique such opportunities.
6. The need to interact the planning of interaction of pension resources with other ‘cupboards of wealth’ has now become vital.