Autumn Statement is the time to simplify pensions
Matthew Phillips, managing director and head of wealth management at Thomas Miller Investment, believes Philip Hammond should use the Autumn Statement to take further significant action on pensions
Philip Hammond will give his first major set piece as Chancellor in the Autumn Statement on Wednesday. The general consensus is that there is unlikely to be huge shocks announced. However there are a few areas that need to be looked at and areas we would like to see addressed.
Clearly the statement will have particular focus given the referendum outcome. The Institute for Fiscal Studies has highlighted that it expects a post-Brexit hole in the public finances of about £25bn by 2020, i.e. the end of this parliament. This will be driven by slower growth and lower tax receipts. Therefore, the Chancellor’s room for manoeuvre is somewhat limited and would suggest a continued squeeze on the public finances and public sector pay.
However, there are also some clear indications that a general increase in spending on infrastructure, particularly transport and housing, could be in the offing.
Measures to support this would target and bring benefit to those who are not in the metropolitan elite, not working in the City, potentially not in the South of England and to those who are loosely referred to as the JAM families (Just About Managing). In short, a strong degree of correlation with those who voted for Brexit.
This is in line with the change of direction set out by the Chancellor, that balancing the books has now been abandoned as a short to medium term goal and part of the Government’s fiscal discipline.
The government is likely to continue with the policy of increasing the personal allowance and is also likely to continue to raise the higher rate tax threshold, again to help those families in middle and lower income brackets.
We expect to see a continuation of the general cut in corporation tax, but I think it’s unlikely that this will head down to the 15% level mooted by George Osborne in the last few days he was in the job after Brexit. While this is a post Brexit goal, we think the likelihood is that it will move from the current 20% to 17%
There shouldn’t be too much more than this. We would like to see the Government once more take action on pensions, as they recently did with the abandonment of the second hand annuity market. We thought this was a bad idea in the first place, so welcomed its demise.
We continue to espouse that pensions should be simplified further (flat rate tax relief, abandon the life-time allowance, and have annual limits on contributions).
The pension triple lock should be abandoned as it has done its job of addressing pensioner poverty and should be replaced with uplifts in line with average wages for the state pension. This should address some of the issues around intergenerational fairness and free up some future budget to help working families.
We would like to see the tapering of pension’s relief abandoned. It is totally unworkable and overly complex, and again sends out the wrong message on pensions.
Generally then this will be a statement that points to a change of positioning and aim in the longer term, given the seismic shift in the political and economic landscape, but will be short on actual policy changes and surprises right now.
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