The End of Tax Freedoms for Pensioners: What Does the Autumn Statement Mean for Those Approaching retirement?
It is fair to say that last years' autumn budget was not exactly keenly anticipated, particularly as the spectre of Brexit continued to loom large on the economic horizon. True to form, the statement delivered some harsh blows and potentially damaging measures, as Chancellor Philip Hammond offered a conservative outlook from a government that is looking to hedge its bets ahead of leaving the EU. Hammond's pledge that real wages were unlikely to grow for a decade offered the starkest insight of all, however, particularly for those who were hoping to build their retirement fund during this time.
What Other Budget Chances Will Impact on Pensioners or Those Approaching Retirement?
Believe it or not, this was not the only bad news for pensioners or individuals approaching retirement age. Hammond also suggested a measure that would scale back pension freedoms, with the popular Money Purchase Annual Allowance (MPAA) expected to be slashed by £6,000 (or 60%) in April 2017. So while individuals were once able to withdraw £10,000 in taxable cash from their funds per annum, this will be reduced to a meagre £4,000 later in the year.
While this will be particularly impactful on individuals who choose to work after withdrawing pension funds (as they are likely to miss out on any future employee contributions), the measure will also have a sweeping and universal effect across all pensioners and retirees. Despite this, pensioners will still be able to make a lump-sum, 25% withdrawal that is tax-free at the beginning of their retirement, with financial planning experts Tilney suggesting that this will place pressure on individuals to manage their funds carefully.
There are two clear issues with this, one which is indicative of a confused and transitional government and another which could prevent individuals from saving in the future. In terms of the former, this latest measure goes against the pension freedoms and reforms initiated previously by the government, creating a less flexible system and undermining the progressive changes that have been made since 2010.
In more practical terms, this new measure is also unsupportive of flexible working and may deter citizens from making pension withdrawals over time. Conversely, they may stop saving into it entirely, as they seek out private investment vehicles that deliver greater freedoms and longer-term rewards.
The Bottom Line for Pensioners
While all of Hammond's speech was hardly greeted with trepidation by households and financial experts, it is the eradication of pension freedoms that is most concerning. Not only does this contradict the government's own ethos and one of their key manifesto points, for example, but it also makes it harder for pensioners to manage their hard-earned money and seek out flexible working opportunities. This is perhaps the price that we pay for Brexit, however, at least until the clouds have cleared and the UK has forged a new path in the modern world.