Despite what we had been led to believe by last summer’s consultation and by the announcement in the Autumn Statement, the Chancellor resisted the temptation to make further changes to the pensions taxation regime in the Budget.
LISAs
He did, however, introduce a new savings vehicle – the Lifetime ISA, or “LISA” – for the under-40s and it is not difficult to envisage this vehicle replacing existing pension arrangements in the longer term. This would then achieve the Chancellor’s dream of a taxed-exempt-exempt regime where no tax relief is provided on pension contributions but no further tax is payable when benefits come into payment.
The LISA is expected to be available from April 2017 to savers under the age of 40. Contributions of up to £4,000 in any year, up to the age of 50, will attract a 25% bonus from the Government. Savers will be able to withdraw funds to purchase a first home (up to the value of £450,000), or after reaching age 60, and keep the Government bonus. However, if funds are withdrawn for any other purpose before age 60, the bonus will be forfeit and there will be a further 5% penalty.
Salary sacrifice
The Government is clamping down on the use of salary sacrifice schemes that enable benefits to be provided without incurring a National Insurance liability. However, the Chancellor confirmed in the Budget that such schemes would continue to be allowed in connection with pension arrangements.
Financial advice
The Government is going to issue a consultation regarding the proposed introduction of a “pensions advice allowance”. This is expected to allow savers to withdraw up to £500 from their defined contribution pension savings – free of tax – to pay for financial advice.