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Against the background of the cost of living crisis and the ongoing economic impact of Russia's invasion of Ukraine, SEI client strategy director Cyprian Njamma said lack of pension reform was "understandable".

"But it is a missed opportunity to communicate hope to savers while addressing some of the country's most critical economic needs," he caveated. "Simplifying pension contribution tax relief in the right way while reforming long-term capital investment allowances could have boosted retirement savings for millions of lower-earning savers during hard times, while also shoring up direct investment in British infrastructure through the pensions industry.

"This shrewd move could at once have reduced the government's tax relief burden and increased investment within the pensions industry, while making the system fairer for millions."

Aegon head of pensions Kate Smith said news that the basic rate of income tax will fall from 20% to 19% could help offset the tax threshold freeze, however.

"A reduction in the basic rate of income tax means that people will get lower tax relief on their pension contribution, meaning that the government top-up directly into their pensions will be less. This means that to get the same retirement income, people will have to pay a little bit more into their pensions."

Quilter head of retirement policy Jon Greer agreed the move was of benefit to older savers who do not pay national insurance contributions.

"Those approaching retirement should if at all possible not forgo pension contributions as putting money into a pension today means you get higher tax relief than when you take it out in a years' time," he warned.

Triple lock

Hymans Robertson partner Chris Noon said the Spring Statement had at least provided confirmation of the government's commitment to reinstating the triple lock, as suggested by secretary of state for work and pensions Thérèse Coffey earlier this week.

"The triple lock used to increase state pension is an important long-term protection for pensioners. Too many pensioners continue to live on incomes below the pensioner poverty, which in tandem with the increasing inflation rise, are leading to increasing worry for many," Noon said. "The Covid pandemic and the arrival of furlough lead to a one-year anomaly, which we are pleased to learn the government has confirmed will end next year. 

"This was a short-term technical issue and it is welcome news that the government has not been persuaded to throw out the triple lock completely."

Noon reiterated concern that the UK already has one of the lowest state pensions across the Organisation for Economic Co-operation and Development (OECD) countries.

The Investing and Saving Alliance estimated auto-enrolment contributions into workplace pensions would need to rise to 12% to put the UK on par.

"Throwing out the triple lock would have risked pushing more pensioners in to poverty," Noon added. "Combined with a current worrying economic crisis, this would have been disastrous for many."


With the cost of living crisis the key concern for the majority of pension savers, the Office for Budget Responsibility (OBR) has today (23 March) confirmed it expected even more savers to draw down on their pensions earlier.

Smith said the government has "missed a clear opportunity" here when it comes to increasing the money purchase annual allowance (MPAA).

"This something the pensions industry has been calling on since the start of the pandemic," she continued. "OBR data is predicting that over 55s are expected to access their pensions earlier, and take out more money, simply to maintain their cost of living as pay packets are squeezed even further. It's clear few people have understood the consequences of flexibly accessing their pensions, potentially with devasting consequences for their future finances."

Canada Life technical director Andrew Tully agreed: "Savers who choose to access their pension pots should also be aware of the MPAA sting in the tail, which significantly limits how much you can continue to contribute to your pension should you wish to top-up any withdrawals."

"The OBR is basically setting expectations for a ‘new normal' of pension dipping activity as tax receipts are predicted to hit £1.7bn. An increase of £0.4bn on 2021. This is not a temporary spike and sets the expectation that the cost of living crisis will be with us for years to come as people look to their pensions as a bank account to support their day-to-day living costs. This is understandable behaviour as people look to make ends meet but we need to remember that pensions are already likely to be stretched over a longer lifespan than previous generations and any withdrawals will need to be sustainable over this period."

Source Professional Pensions 23/3/2022


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