Was that “do-nothing” budget good or bad for pensions?

budget estimate 2

We are naturally conservative, resisting change while demanding improvements. We cannot have it both ways! Maintaining the status quo – as yesterday’s budget did, will please those who hate tinkering but displease those who see the current system as broken.

Since we have a Conservative Government, it is to be expected that we have a do-nothing budget – but let’s remember that it was a Conservative led coalition that introduced pension freedoms and auto-enrolment. The latest budget is unusual in doing nothing to pensions.


Doing nothing does not mean standing still

In one sense, pensions took a step backwards in the budget. The announcement that the nil-rate tax band will be extended to £12,500 means that there will be a wider gap between it and the auto-enrolment threshold. This means more people being caught in the net-pay trap (anomaly) and more people paying 4% of their AE band from April 2019 rather than 3%.

These people are generally those “just getting by” and it’s a sad state of affairs that – despite professing to be addressing the situation, the Treasury have said nothing about remedies for the broken promises that continue every month that the net-pay scandal is perpetuated.

I totally endorse the comments of Adrian Boulding – in his capacity as NOW Pensions’ Director of Strategy

It’s extremely disappointing that the Chancellor has chosen to continue to ignore the 1.2 million low earners in ‘net pay’ schemes who are missing out on tax relief on their pension contributions through no fault of their own.

“One of the headline benefits of saving into a workplace pension is when you pay in, the government pays in too. But, in net pay schemes, lower earners who don’t pay income tax don’t receive the government top up they would have received had they been paying into a ‘relief at source’ pension scheme.

“This isn’t just a quirk of the tax system but something that affects working people’s living standards. The government must act urgently to end this injustice ensuring that all low earners receive tax relief regardless of which type of scheme they are in. We will continue to press for action until our voice is heard.”

Doing nothing when something needs to be done is not good news for pensions. Standing by and saying nothing when we know what is happening is wrong is not good for pension professionals.

The budget opened doors for a review of DC investment strategies by looking at lifting the pension charge cap and consulting on investment in patient capital – that is good.

But if the money is not flowing into the pensions to be invested, all the consultation in the world will not make a blind bit of difference to the 1.2m people HMRC and net pay schemes  are currently short-changing.


The story is still in chapter one

So long as there is a window of opportunity – opened by the review of tax-codes for Scottish Income tax, the signatories of the Treasury petition on net pay, will continue to press for immediate remedial action. That includes me!

We could do with more support and I hope that our combined efforts will prompt a meeting with the HMRC to discuss our remedial solutions.

Even if the bonnet closes on this current opportunity, we will not shut up. The budget made the scope of the problem wider and the quantum of the loss to those impacted – greater.

Doing nothing in budgets can seem a good idea, but in a world where everything is changing, unless pensions changes with it, pensions go backwards.

In the end, that is my assessment of this year’s budget – at least as it effects the work I do.

budget estimate

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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