Surprise good news for pensions could be on the horizon, says PwC

Promoting “lifetime saving” and easing the female State Pension Age transition could be new options for the Chancellor

The apparent U-turn from the Chancellor on pensions reform, suggesting that there will now be no change to pension tax relief in the Budget, could lead to surprise “good news” on wider pensions and savings, according to PwC’s pensions team.

For this Budget at least, the game has changed and the political factors that have delayed pensions tax reform could encourage the Chancellor to find other ways to increase incentives to save, particularly for young workers.

PwC’s Citizens’ Jury - which brought together three age groups reflected equally (millennials, generation x and baby boomers) - has made a call to action for measures to encourage saving for younger people.

With young people increasingly expecting to retire later and facing competing savings needs, one positive step could be to allow “lifetime saving”, e.g. by allowing new and existing “retirement” funds built up at a young age to be accessed early to fund a deposit on a first home.

Raj Mody, head of pensions advisory at PwC, said:

“The widely held belief that the Chancellor was going to initiate major pensions tax reform in this Budget has changed. But tax reform was only part of the original consultation. Instead he may now look to other ways to incentivise saving, particularly for younger people with competing savings needs.

“The Chancellor wants to increase incentives to save and, for younger people, a key challenge is how to manage the tension between saving for a pension and saving for a deposit on a first home. Allowing individuals to make withdrawals from a “pension” fund at a young age specifically for this purpose could benefit young people by effectively allowing them to save for a house, while also benefiting from employer contributions. Taxing withdrawals would raise immediate revenue for the Chancellor.

“One option would be to combine this with an increase to auto-enrolment contribution rates over time. Combined with increased flexibility to access funds at an earlier age, this could act as a powerful incentive to saving within this demographic.”

The perception of fairness is also key to encouraging savings across all age groups. For older workers, a clear option for the Chancellor is to address the growing concern of the impact of rapid increases to state pension age for women born between April 1953 and April 1956, who were doubly caught by plans to equalise the state pension age for men and women and also increase state pension age from 65 to 66.

Raj Mody, added:

“Addressing this perceived inequality could be a starting point for the Chancellor in this Budget. Allowing the female state pension age to increase slightly more slowly towards the target age of 66 would ease this transition. As a marker for fairness, this could also encourage saving for all age groups. “

In the longer term, we expect tax reform measures to re-emerge and it is now quite plausible for the Chancellor to announce a period of internal review and reflection by HM Treasury, while continuing to refine the flat rate relief and ISA-style ideas.

Raj Mody, added:

“There is clearly now much uncertainty over what the Chancellor will announce on pensions. In the longer term we expect tax reform measures to re-emerge. However, for this budget at least, the field is now clear if he wants to introduce some surprise new measures to incentivise saving.”

　

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Notes for Editor:

1. For interviews and more information please contact Nicola Thorogood on 020 7804 6007 or [email protected]

2. For further commentary on market issues, visit our pensions blog: www.pwc.blogs.com/pensions

About the Citzens’ Jury

On behalf of PwC, BritainThinks recruited 22 members of the British public, representing different social and economic groups and a range of locations (urban and rural)

The jury was designed to ensure representation from each of the following three generations:

Generation Y/Millennials (born between 1985 and 2000)

Generation X (born between 1965 and 1984)

Babyboomers (born between 1946 and 1964)

All participants were of an age that meant they site in the ‘middle’ of their generation, by selecting age brackets of 20-7, 40-50 and 60-67.

The Citzens’ Jury took place on 16-18 February.

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