Industry news and analysis

Forthcoming Autumn Budget

On November 22 the Chancellor will deliver the 2017 Autumn Budget. This will not be a Pre-Budget Report or an Autumn Statement, but the full Budget introducing changes for forthcoming tax years.

Whether or not a Budget will contain changes affecting pensions is the subject of frequent speculation, but there can be no guarantees. However, on a number of occasions in recent tax years those that predicted a reduction in the annual allowance (or some kind of additional restriction, such as the money purchase annual allowance or tapered annual allowance) were proved correct.

The Work & Pensions Secretary recently stated that major reform of pension tax relief is on the table but ruled out fundamental change in the short term. So, we are not anticipating a major overhaul of the current system, but that does not exclude small-scale changes to existing limits. The simplest way in which the amount of tax relief available to individuals can be restricted is by reducing the annual allowance, as has been done on a number of occasions in recent years.

Will this happen again on the 22nd of November? Who can say, but the constant tinkering with pension limits does create an incentive - at least to those with adequate financial means - to pay the maximum contribution current limits allow before Budget day.

The maximum contribution is the remaining annual allowance for 2017/2018 plus available carry forward (unless the money purchase annual allowance applies). Total personal contributions for the tax year are also capped at 100% of relevant UK earnings, which means some pension scheme members will not be able to fully utilise their annual allowance and carry forward. Employer contributions are not similarly restricted, providing another route to maximising pension funding.

Many of those that can afford to pay the maximum contribution in advance of the Budget will just be bringing their planned contributions forward, so ‘no change’ on Budget day would have no negative consequences for them. But it does have the minor benefit of extra tax-free fund growth on those contributions that were paid into the pension fund earlier than would otherwise have been the case.

If on Budget day, the annual allowance is restricted with immediate effect, those that had paid the maximum contribution may be in a better position. Whilst past changes are no guide to future ones, those that had fully utilised the annual allowance before the Summer Budget of 2015, for example, benefited from an extra £40,000 worth of annual allowance compared to those than had not used any part of the annual allowance by that date.

We will have to wait and see what the 22 November 2017 brings for pension savers, but paying the maximum contribution before the Budget can potentially put clients in a more advantageous position with no downside to note for those with sufficient means to maximise their contributions now.

  

2 November 2017

Copyright ©2018 Scottish Widows | Copyright, companies, legal and privacy information |  Accessibility | Site map

Important Information about Scottish Widows | Read about how we use cookies

Information within this site is intended for UK authorised and regulated financial advisers only. It is not intended for onward transmission to retail customers and should not be relied upon by any other person. If you are not an adviser please return to our consumer site.

Scottish Widows is not responsible for the content of third party websites. Separate terms apply to the use of third party websites and Scottish Widows does not warrant the accuracy, reliability, availability or otherwise of these sites.

By using this site you agree to our terms & conditions of use. Please read our copyright, companies, legal and privacy information. We may record and monitor calls to help us improve our service.

Scottish Widows Limited. Registered in England and Wales No. 3196171. Registered office in the United Kingdom at 25 Gresham Street, London EC2V 7HN. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number 181655.

Scottish Widows Unit Trust Managers Limited. Registered in England and Wales No. 1629925. Registered Office in the United Kingdom at Charlton Place, Andover, Hampshire SP10 1RE. Tel: 0345 300 2244. Authorised and regulated by the Financial Conduct Authority. Financial Services Register number 122129.

HBOS Investment Fund Managers Limited, registered in England number 941082. Registered office in the United Kingdom at Trinity Road, Halifax, West Yorkshire HX1 2RG. Authorised and regulated by the Financial Conduct Authority. Financial Services Register number 119223.

Scottish Widows Bank is a trading name of Lloyds Bank plc. Registered office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales, no. 2065. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under number 119278.

Browser Warning: your browser may not be fully supported on this site. Visit our browser help page for a list of supported browsers.
close