Top of the Chancellor’s agenda should be making sure the government’s policies fit today’s society and clarifying complicated rules that continue to muddy the waters. Hammond has already scrapped two of George Osborne’s policies and this statement gives him a position to tidy up some of the confused messages his predecessor left behind.
Pensions & savings, Old Mutual Wealth pensions expert Jon Greer:
Give low-paid workers equal access to pension savings through auto-enrolment
“There has been lots of scrutiny around low-pay, zero hours contracts, part-time work and the rights of those in the ‘gig’economy.
Government have taken some steps to address fair pay for this growing section of the workforce through the living wage.
“But pensions still lag behind. Employers do not have to auto-enrol staff into a pension if they earn less than £10,000. That means they miss-out out the tax-relief and employer contributions enjoyed by their colleagues. This auto-enrolment exemption applies if people are working multiple jobs paying less than £10,000, even if their combined pay is over the qualifying threshold.
“The £10,000 threshold should be brought down or abolished. It is not acceptable that the lowest earners miss out of tax relief and employer pension contributions enjoyed by their peers.”
Abolish the annual allowance taper
“The annual allowance tax taper is extremely complicated and we believe it should be scrapped. Phillip Hammond is in a position to backtrack on the annual allowance tax taper, since it could easily be chalked-up to an error of judgement on the part of former Chancellor, George Osborne.
“It is easy to see why it might be politically popular to curb the tax relief available to higher earners, but this complicated taper is not a sensible measure.”
The Lifetime ISA needs a re-think to make it work
“The Lifetime Isa is a bit muddled and does not feel like it was fully thought through.
“It will certainly appeal to first-time buyers. But third party funding – allowing parents to pay-in directly on behalf of their kids - should also be allowed, just as it is with junior Isas and pensions. That would help unlock the ‘bank of mum and dad’, while giving re-assurance to parents by prohibiting savings from being used for anything other than buying a house.
“As a longer-term savings vehicle, the Lisa still won’t supersede pensions for the majority of the workforce. And the government should definitively rule-out the Lisa being used a trojan-horse for a future pension-Isa.”
“But it could be an options for the self-employed, who won’t be auto-enrolled into a pension like the rest of the workforce. Putting money in a Sipp can also be tricky for self-employed people that may want the option to withdraw money at any age, just in case. The Lifetime Isa might appeal to them if it included some tweaks to allow contributions from the self-employed past the age of 40; and gave them the option to withdraw money at any time without a penalty.”
Leave pension tax relief alone
“Philip Hammond could choose to bring in a lower, flat-rate of pension tax relief. And there is even speculation about a possible age-linked system.
“The current system means saving money into a pension free of income tax, providing a strong incentive to save. While there is evidence many people don’t appreciate how generous pensions are, there is no evidence that an alternative system would be better understood by the public.
“Any reform would likely be as much about savings the government money as increasing the incentive to save. It would also be politically risky since curbs to tax relief are likely to be strongly opposed by many pension savers.
“However, if government does push ahead with reform, a flat-rate of 30-33% could be palatable and would still mean pensions remain the most attractive savings vehicle for all tax payers. If a flat rate is introduced, the government must ensure it applies to both defined benefit and defined contribution to ensure a level playing field.”
Government to respond to calls to scrapping the triple lock
“Following the Commons Work and Pensions Committee recommendation to scrap the state pension’s triple lock and John Cridland’s review of the state pension age the Chancellor is in a position to sign-post future changes to the state pension. While there is a Conservative manifesto commitment to keep the triple lock through this term they will need to plan ahead to unwind it in future. He could call for a green paper to get thoughts on reforms that would be palatable to the public.
“It’s logical that the triple lock be removed, however, it needs to be undone with careful thought. To make its removal viable policymakers need to reduce reliance on the state in retirement. One easy way to do this would be to introduce policies that encourage the ‘retired’ or recently retired back into work.
“Such a cultural shift would have several benefits. It would reduce people’s reliance on the state pension due to people maintaining a diversified income stream for longer. As people worked longer, they would be less likely to suffer from mental illness and this would in turn shrink later life care costs. The Institute of Economic Affairs suggests that retirement increases the chances of suffering from clinical depression by around 40%, and of having at least one diagnosed physical illness by 60%.
“Additionally, a new pool of workers could also fill the potential talent gap left by Brexit. Given the current political uncertainty surrounding the UK’s place in the EU, the government should be bolstering its economy with the resources it already has.”
Tax and financial planning laws, Old Mutual Wealth financial planning expert, Rachael Griffin:
After 35 years of stasis, gifting limits could more than triple to catch-up with inflation:
“The annual IHT allowance on gifts has not been increased since 1981, and would be worth over £10,000 had it tracked inflation in that time. There is a good case for the £3,000 limit to be increased after 35 years of stasis.
“We know there are lots of people that would like to pass wealth down to their families, particularly as retired households are at historic highs in terms of the wealth they hold relative the working-age population. Increasing the annual allowance would encourage some of that money to cascade down the chain, giving a welcome financial boost to younger generations.”
HMRC are expected to tidy up rules after one bond-holder over-turned his 779% tax through the courts:
“We are expecting more news from HMRC on the consolation on partial withdrawals from bonds. This consultation originated from the need to address the inequitable tax position some people find themselves in if they have taken a withdrawal from their
investment bond in the wrong way.
“We firmly believe HMRC should be looking for an approach which allows for a customer’s position to be corrected if they have taken their withdrawal in the wrong way without impacting the general withdrawal rules on bonds for all other customers.
“We suggest the 5% partial withdrawal allowance on bonds is well-established, and advisers and customers are familiar with this. The number of customers taking withdrawals from bonds in the wrong way is minimal and allowing providers to correct the customers’ position will be sensible and pragmatic.
“This issue was highlighted by the Lobler Vs. HMRC case, in which the Upper Tribunal allowed the tax error to be rectified.”
Corporation tax cuts to boost investment in the economy:
“In September the UK recorded the lowest corporation tax-take since 2009. However, with companies suffering from economic and political uncertainty, and the possibility of business relocating some operations outside the UK, a cut to corporation tax might be considered. Philip Hammond could cut rates down toward Ireland’s 12.5% rate.
“For entrepreneurs, business-owners and investors, a cut in corporation tax would provide a welcome boost.
“Similarly, the Chancellor may want to take measures to stimulate investment in smaller businesses that can be vulnerable during periods of financial turmoil.
“The 2016 Budget saw a significant tax boost to Enterprise Investment Schemes (EIS) with tax on investment gains cut from 28% to 20%.
“Measures such as extending the annual investment limits could also be implemented to encourage more savers to invest in innovative firms in need of growth capital.”
Jon and Rachael are available to speak in the run up to the Autumn Statement.