Post election musings
Like most newlyweds, the LibDems and Tories are probably not thinking about pensions on their honeymoon, but already it is possible to pick up on some pointers for how the next 5 years might shape up.
So far only a 7 page document on all policy has been released, and much more detail is expected next week. It did include a section on pensions, though, including plans to increase the State pension age, end compulsory annuitisation at 75 and compensate Equitable Life policyholders. Changing the unloved age 75 rule was part of Conservative policy before the Election and will be very welcome if they make a proper job of it.
No mention was made of pension contribution tax relief and we hope that the LibDem plans to restrict this to the basic rate have been quietly dropped to make the coalition work, although in view of the current state of UK finances we remain suspicious.
The proposed increase in Capital Gains Tax to up to 40% is a potential boost for pensions. Nobody minded paying CGT too much when it was at 18%, but an increase to 40% and a reduction in the CGT threshold will open the door again for suitable alternatives. Holding an asset in a pension scheme where the gain is tax free will start to look a lot more attractive than holding it personally and paying a high rate of CGT.
In specie contributions into SIPPs of assets which have growth potential have always been a good idea, but if keeping them personally meant a tax bill of only 18% then it was understandable that they didn't happen very often in practice.
At the higher rate of CGT we may see a lot more in specie contributions. There is real uncertainty as to whether these changes will apply from the Day 50 Budget or be backdated, so a last minute rush is probably unlikely. Going forward though this should be more prevalent, particularly for assets with current low values.
The abolition of the contribution restrictions for high income individuals would be a big help with what can be done, and while the appointment of Steve Webb as Pensions Minister would generally be regarded as a positive move let's not get ahead of ourselves! - early days after all..