- Measures to incentivise the over 50s back into work
- Money Purchase Annual Allowance
- Accelerating state pension age to age 68
- Minimum pension age
- State pension triple lock review
- Frozen tax thresholds
- A reminder of cuts to Capital Gains Tax and Dividend allowances comes into force in April
Andrew Tully, technical director, Canada Life commented:
Measures to incentivise the over 50s back into work
“Despite the Chancellor having very little fiscal wiggle room, there are still likely to be some major announcements to get the UK economy moving in a positive direction. This is likely to centre around the large number of economically inactive over 50s, whether that be through encouraging people out of retirement or supporting people back to work from long-term sickness absence. This is a complicated area and there will be no one size fits all approach, with the Chancellor treading a fine line to avoid alienating any one cohort of society. The Government is also likely to consider measures around the Energy Price Guarantee which is due to increase in April. A specific policy which is likely to be ditched is the RPI increase to fuel duty. That would see a very significant increase to prices at the fuel pumps which would be deeply unpopular and also hit future inflation figures.”
Money Purchase Annual Allowance (MPAA)
“One area to address is the pernicious MPAA. Penalising people who either return to the workforce or attempt to replenish savings having used the pension freedoms as designed feels wrong. This isn’t an issue for the wealthy, our figures show someone who has flexibly accessed their pension, earning just over £33,000 and, together with their employer, contributing 12% will be caught by this tax charge.”
According to recent Canada Life research, three in five over 55s with a Defined Contribution (DC) pension (62%) have never heard of the MPAA. Just 4% say they know exactly what it is and how it works, while a quarter (27%) of over 55s with a DC pension have accessed it since 2015. Canada Life estimates between 500,000 and 1 million people are now affected by the MPAA restrictions.
Accelerating state pension age to age 68
“We must hear by May at the very latest what the government plan to do about future rises in state pension age. Rumours suggest plans to increase to age 68 will be brought forward, potentially to the 2030s, and this will affect many people. DWP needs to learn lessons form the past and ensure anyone within this bracket are told they will have to wait an extra year to claim their state pension. Potentially hundreds of thousands of retirement plans will need to be rejigged. Many people will face a challenge to bridge the gap between when they want to retire and when the state pension starts. And for many, the state pension won’t provide a desirable standard of living in retirement, so other savings will be required.”
Minimum pension age
“Aligned to the moving state pension goalposts is the minimum pension age – the earliest you can access your private pension savings. Currently age 55, and already moving to age 57 from 2028. But, if government retain the 10-year link to state pension age, then it will rapidly move to age 58, a three-year hike in a very short time frame, which could throw retirement plans into disarray. People may need to adapt plans or use non-pension assets to tide them over.”
State Pension Triple Lock review
“This may also be an opportune time to consider the longer-term future of the state pension triple lock. Any changes would be hugely controversial. But it’s worth remembering the state pensions of today’s retirees are paid for from the tax receipts of today’s workers - so there should be a sensible debate around the intergenerational fairness and affordability of the state pension in its current format. Every 1% increase in the state pension costs the taxpayer £900m, each year. That’s a hugely expensive state benefit today but looking ahead even more so, as the ratio of workers to retirees is forecast to change. By 2045 the number of people of pensionable age will grow to 15.2 million, an increase of 28% on the level in 2020. There is a tricky balancing act for Government as it looks to the medium and long-term sustainability of this policy.”
Frozen tax thresholds
“Many income tax allowances are already frozen through to 2028, which will mean many people paying significantly higher income tax. Any further freezing of tax thresholds will leave millions out in the cold. Further increases to personal taxes by stealth will be deeply unpopular with an electorate struggling to balance household budgets. With an election around 18 months away, the Chancellor may want to consider the impact these are having on many voters in advance of the next general election.”
Cuts to capital gains tax and dividend allowance
“We shouldn’t forget that the Autumn statement introduces changes to dividend and capital gains taxation (CGT) from April 2023 with more following in April 2024. The dividend allowance will be substantially cut over the next two tax years, reducing from £2,000 to £1,000 from April 2023 and then drop further to £500 in tax year 2024/25. An individual’s CGT exemption will fall from the current £12,300 to £6,000 from April 2023 and then to £3,000 from tax year 2024/25. Trusts will continue to get half of the individual exemption.
“Taken together these are bad news for the average investor holding money in unwrapped portfolios outside ISAs and pensions. But many other clients will be hit, including those with taxable portfolios who undertake automated rebalancing, trustees with unwrapped portfolios within their trusts, buy-to-let investors, and those who use general investment accounts to fund ISAs on an annual basis. Moving forward, non-income producing assets such as investment bonds could be an appropriate home for many people with money to invest, alongside the continuing benefits of pensions and ISAs.”
ENDS
Enquiries:
Press enquiries should be directed to:
Elle McAtamney at Canada Life, elle.mcatamney@canadalife.co.uk
Notes to editors
- Source: Canada Life research among 1500 UK adults aged 55+ with a DC pension, with fieldwork conducted by Opinium between 30th January and 6th February 2023.
Salary levels at which the MPAA is relevant, for different MPAA levels and contribution rates
|
MPAA levels |
8% |
12% |
15% |
25.60% |
|
At the current £4,000 |
£50,000 |
£33,334 |
£26,667 |
£15,625 |
|
If reset to £10,000 |
£125,000 |
£83,333 |
£66,667 |
£39,063 |
Source: Canada Life. 8% is the default auto-enrolment contribution rate. 12% is the minimum required for the Pension Quality Mark. 15% is the rate required for the Pension Quality Mark+. 25.6% is the average contribution rate for a private sector defined benefit pension scheme.
About Canada Life:
Canada Life is part of a group of companies controlled by Great-West Lifeco Inc., a diversified financial services holding company headquartered in Winnipeg, Canada. Through its subsidiary companies, Lifeco has operations in Canada, the United States, and Europe. Great-West Lifeco and its insurance subsidiaries have received strong ratings from major rating agencies. Great-West Lifeco has over 30 million customers worldwide and £1.341 trillion assets under administration (as at 31 December 2021).
Canada Life Limited began operations in the United Kingdom in 1903 and looks after the retirement, investment and protection needs of individuals and companies alike. As well as providing stability and security through its individual contracts, Canada Life Limited has grown to become the leading provider of competitively priced group insurance solutions. Canada Life acquired Retirement Advantage on 3rd January 2018 for an undisclosed sum. The acquisition added over 30,000 retirement income and equity release customers and more than £2 billion of assets under management including a £1.5 billion block of in-force annuities to Canada Life.
Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Canada Life International Limited and CLI Institutional Limited are Isle of Man registered companies authorised and regulated by the Isle of Man Financial Services Authority. Canada Life International Assurance Limited and Canada Life International Assurance (Ireland) DAC are authorised and regulated by the Central Bank of Ireland.
Stonehaven UK Limited, trading as Canada Life, is a subsidiary of The Canada Life Group (U.K.) Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England and Wales. Registered number: 05487702. Registered office: Canada Life Place, Potters Bar, Hertfordshire EN6 5BA.