The previous twelve months have been extraordinary in terms of Government spending.
With the coronavirus pandemic causing the UK to enter into three national lockdowns, the Government had no choice but to intervene with financial support for individuals. Indeed, the likes of the furlough scheme and coronavirus business interruption loans have proved vital to keeping businesses and households afloat.
Whilst necessary, such schemes were incredibly costly. Official figures state that the Government has borrowed £270.6 billion between April 2020 and February 2021 to pay for them – which is £222 billion more than a year ago. Now, Chancellor Rishi Sunak must face the difficult task of footing the bill.
Consequently, rumours are rife that Mr Sunak will use the Budget 2021 on 3rd March to announce his plans to pay for COVID-support schemes, and the financial services industry fears that pensioners will bear the brunt of these costs. Indeed, speculation regarding the affordability of pension tax relief or the state pension triple lock are doing nothing to calm the nerves of retirement planners.
However, the pension industry has its own Wishlist for this years’ Budget…
Safeguarding pension tax relief benefits
Pension tax relief is one of the most effective methods of incentivising Britons – young and old – to save for their future.
Put simply, when an individual pays into their pension scheme, the money that would have gone to the Government as income tax is put into their pension scheme instead. It is paid in accordance with the highest rate of income tax an individual pays. So, a basic-rate taxpayer will receive 20% in pension tax relief. Meanwhile, higher and additional rate taxpayers receive 40% and 45% respectively.
However, this is an inevitably expensive scheme, and it is rumoured to be under review ahead of the budget – particularly when it comes to the maximum limit an individual can save in order to receive the relief. Presently, the annual savings limit is £40,000. Although recent analysis suggests that reducing the limit could produce billions in savings for the Government.
Many within the pension sector hope that this will not be the case. After all, thousands of people build their entire retirement strategies around the assumption that they will receive tax relief on their pension savings. So, reducing the annual limit might leave savers worse off in retirement, or even discourage younger people from saving into a pension altogether.
Preserving the triple lock
The state pension triple lock has proven vital to keeping thousands of pensioners above the poverty line throughout retirement.
Introduced in 2010, the triple lock ensures that the state pension does not lose value against inflation, by guaranteeing it will increase by 2.5% each year. In fact, recent research from the Pension Policy Institute has highlighted its importance, by revealing that, for poor pensioners, three in every four pounds of their retirement income comes from the state pension.
Similar to pension tax relief, however, this is a costly policy. And with recent figures suggesting that scrapping the policy entirely could lead to savings of t approximately £14 billion by 2023, many are concerned that the Chancellor may use the Budget to announce the end of the triple lock entirely.
However, doing so could have a upend many people’s retirement plans. So, many will be hoping that the Chancellor will leave the triple lock untouched, or at the very least, announce a viable alternative before making any changes to the triple lock, to ensure future generations of retirees are not left struggling to make ends meet.
Prioritise protection
Finally, the pension industry would benefit from the Chancellor do more to protect consumers against pension scammers. The problem of scammers has been present for many years; however, the coronavirus pandemic appears to have only heightened the issue.
The financial pressures caused by COVID-19 have left many people uncertain about their retirement. And unfortunately, scammers are quick to jump on this uncertainty, and take advantage of vulnerable savers. Indeed, recent research from My Pension Expert revealed that over one in ten (11%) Britons were targeted by pension scammers within the first half of 2020 alone.
It is therefore vital that the Chancellor uses the Budget to announce new protective measures for pension savers. Such protection could be achieved using a combination of educational tools and improving consumers’ access to independent financial advice. This will empower adults with the knowledge to identify fraudulent behaviour and understand where they can turn to for legitimate pension advice.
Naturally, the Government must take steps to repay public debt. However, it would be unfair to place the costly burden on retirement savers.
Instead. The Chancellor should look to offer greater protections for savers and ensure all have access to affordable financial advice. Such action will undoubtedly improve the prospects of current and existing generations of retirees.