For a small number of years it has been clear to us that the Government was laying the ground for an effective abolishing of pension plans as now understood, with ISAs to be the replacement e.g. as they persistently increased ISA allowances, and reduced both the allowances and relative simplicity of pension plans. Do you recall the idea of “pensions simplification”? Of course it never really happened – now we move towards the ultimate pensions simplification – abolish them!
In this Budget, another sharp increase in the ISA allowance (to £20,000), and the introduction of the lifetime ISA, are two preconditions for abolishing pension plans in years to come, in particular for those below a certain age – probably somewhere in the range of age 40-50.
Although the fact that the lifetime ISA is only available to under-40s underpins that the Government expects these adjustments to take place over a long period, over-40 pension savers should not expect the current tax attractions of pension plans to persist for more than another year, perhaps two.
What action should you take?
Maximise your ISA contributions, now and every year. It is clear that ISAs are intended to be the optimum savings vehicle, for all investors and for all purposes.
Maximise your pension contributions, while you still can. Tax relief on pension contributions, up to 45% for the highest earners, continue to be very attractive. But we don’t expect this and other attractions to continue more than another year or two.
Talk to your usual adviser to pin down the precise action which is right for you, or get in touch with any feedback or thoughts.