20th May 2015
As Ros Altmann begins her new role as pensions minister, Kate Smith, regulatory strategy manager at Aegon looks at what changes might be afoot in the coming months…
Dr Ros Altmann is a well-known consumer champion and taking up the reins of her new role she said her priorities were: “To strengthen British pensions, improve later life incomes, and protect the pensioners of today and tomorrow.”
Working as a minister and not an independent commentator, it’ll be interesting to see how Ros manages to balance the interests of the older workers she’s previously championed with those of younger workers, the government and industry practitioners.
But a change in top level pension personnel isn’t the only thing the general election served up. It’s also returned a majority Conservative government meaning David Cameron is no longer leading a coalition, giving him the political freedom to implement Conservative policies without Lib Dem influence. But his majority is slim and it doesn’t stretch to the House of Lords so the Conservatives will be aware of the need for some cross-party appeal.
The government’s position in the House of Commons may speed up the parliamentary process, but what really counts is getting future policies right and often it takes time to debate them fully and observe how they work in practice.
I hope the pension industry is given time to work through the new pension freedoms that came into force in April and the auto-enrolment legislation that’s just coming into play for smaller companies before we see any new policies enacted.
By taking time to monitor customer behaviour and by examining how people respond to both auto-enrolment and the new pension freedoms, the government will be more informed about what people want and therefore better placed to introduce future amendments that match people’s changing later life needs.
Despite this I think the government will push ahead with its stated policy of cutting the tax relief on pension contributions available to people earning over £150,000. It wants to taper the annual allowance for those earning between £150,000 and £210,000 a year, reducing it from £40,000 to £10,000.
Although this wouldn’t affect the majority of pension savers, it would create more headlines about changes in the market and feed the general perception that pensions are a continually moving feast and difficult to get to grips with. At a time when the government and the pension industry are both trying to engage customers earlier on the issue of pension planning such headlines could be counterproductive.
There’s also a downward shift in the lifetime allowance scheduled for April 2016 when it’s due to fall further from £1.25m to £1m. This will add another layer of complication and limit to around £25,000 a year the amount of retirement income people with a defined contribution scheme can purchase; well below what many aspire to.
If the government decides to push ahead with its changes to tax relief on pension contributions it’s likely to announce them either in the Queen’s Speech on 27 May or in an emergency budget on 8 July.
Looking ahead, the government will be focusing a lot of time and energy on constitutional issues such as the referendum on Europe and more devolved powers for Scotland and perhaps other jurisdictions. This may limit the government’s appetite for new pension initiatives.