Predicting what may or may not be in a Chancellor’s Budget is never straightforward. I suspect most of us over the years have more often than not found our predictions to be completely wide of the mark.
I hope I am wrong but looking forward to George Osborne’s forthcoming statement on 8 July I cannot envisage much good news, if any, in it for pensions.
Traditionally, a new government’s first Budget is the time to get the bad stuff out in the open, leaving themselves the four years up to the next election to feed in more crowd pleasing measures and sweeteners.
On this occasion, George Osborne has a particularly difficult task. He is committed to somehow finding an extra £8bn a year for our ailing NHS at the same time as he needs to produce even more substantial funding for major capital projects: the replacement of Trident, high speed rail links, a third London airport and so on.
There is also the promise to stay on track to eliminate the deficit by 2018, for which Osborne is looking to squeeze some £10bn of savings out of Whitehall, requiring, it seems, a further 100,000 job losses across the civil service over the next five years. Some very tough times lie ahead for many departmental budgets.
We can expect pension tax reliefs and allowances to once again come in for close scrutiny, with the scrapping of higher rate tax relief and its replacement by a single standard rate for all of no more than, say, 23 per cent a distinct possibility. The abolition of the tax-free lump sum could also now be more easily justified in the wake of the new pension freedoms and the greater accessibility to cash generally.
State pension ages may be pushed back even further and more rapidly as we move to a new retirement age of perhaps 70 in the space of the next 10 years. Public sector pensions – especially the LGPS – could be subject to further funding restrictions and/or cutbacks as the Government looks to make substantial savings from economies of scale.
Beyond all that, further savings may be forthcoming from a coming together of the tax and National Insurance administrations or even from a merger of the various non-departmental public bodies (or, as more commonly known, quangos). The FCA and The Pensions Regulator, the Financial Ombudsman Service and the Pensions Ombudsman, the Pension Protection Fund and the Financial Services Compensation Service, and the Money Advice Service and The Pensions Advisory Service are all arguably at least in the frame for that purpose.
If, for example, the two regulators were to become one there would be a single board of governors, one chairman, one chief executive and doubtless many more economies of scale lower down. I think many in the industry would actually welcome such a merger making it more transparent about who does what, how and when.
From a public perspective as well, having two organisations apparently operating in the same space can be very confusing. For example, having two ombudsmen (three if you include the Parliamentary Ombudsman) probably does not make a lot of sense to the ordinary scheme member looking for someone to investigate their complaint and grant them redress.
Finally, in relation to the provision of government-backed guidance the same arguments apply. There have already been calls for TPAS to be subsumed within MAS and, provided the former’s status and known expertise was not lost in the process, this is at least a possibility that could be explored. Bringing Citizens Advice into a new merged operation may be more difficult as it is not technically a quango and legally, therefore, may not be achievable.
At this stage, however, anything is possible. The pensions industry, like everyone else, will await Osborne’s Budget with great interest and more than a little trepidation.
Malcolm McLean is senior consultant at Barnett Waddingham.