Well well, who saw that one coming?
The announcement this weekend that the Chancellor will no longer raid pensions tax relief in the upcoming budget has bamboozled the pensions industry, who (ourselves included) widely expected the introduction of a flat rate of tax relief, or worse, the possibility of the Pension ISA.
While this may only be a stay of execution for the soft target that is pensions tax relief, the news will be welcomed by both the industry and the thousands of our clients invested in pensions nationwide.
So, this is a triumph for common sense and fairness, but why the change of heart?
Removing higher rate tax relief for the highest earners was always going to be a political hot potato. As we approach this summer’s referendum on Europe, it would seem that the Chancellor wants to remove any distraction or threat that could damage his campaign to keep Britain on his side and inside the EU.
Creating a revolt amongst his own MPs and the core of the party would not help his cause and we can only assume he wants to steady the waters now before the storm of the summer.
Aside from politics, the proposed changes were also deeply unpopular with higher earners who are already facing a reduction in tax relievable contributions through the Tapered Annual Allowance. Removing higher rate relief would have been the final nail in their savings coffin.
These proposals would have also made it more difficult for employers who are trying to understand their future scheme design and engage their members, most of whom either do not understand pensions in the wake of constant change or comprehend the prospect of being penalised further. This reversal and period of stability will be welcome break for employee and employer alike.
Pension providers will also breathe easier in the knowledge that systems and processes will be largely unaffected. Switching to the Pension ISA model would have been catastrophic for providers and the cost of updating their own internal infrastructure would have run into the millions at a time were margins are tighter than ever due to already implemented legislation regarding charging and auto-enrolment.
So what do we think?
This is great news for members, employers, advisers and providers. Pensions need stability. Constant tinkering is having an adverse effect on pension engagement at a time where the industry is at a cross roads. Keep changing the goal posts and members will switch off and try and do something else for their retirement. Similarly, employers may switch off from doing more than the minimum, if they feel it introduces unnecessary risk and burdens on them.
But by keeping the status quo and allowing millions of pension members to maintain their course for saving, they provide the platform for a more meaningful retirement.
So bravo Mr Osborne! Either you have listened to the market and done the right thing by the millions of savers already invested in pensions or you have bowed to the threat of alienating your political allies at a time when the future of a nation is up for debate.
Either way, it should be seen as a real positive when we think what could have been.