State pension triple lock is guaranteed for this Parliament but no consensus for reforming pension tax relief, government says

Published by Edmund Greaves on 12 October 2018.
Last updated on 12 October 2018

The key takeaways from the Spring Statement 2018

The state pension triple lock will remain in place at least "for the rest of this Parliament", the government has confirmed. 

The announcement comes in response to a Treasury committee report into household finances, reported in Moneywise, that accused the triple lock of being “unsustainable”.

The triple lock guarantees that the state pension grows every year by the highest of inflation, growth in earnings or 2.5%. While the committee says this makes it unsustainable, the government says it stands by the triple lock as a key lever for lifting many pensioners out of poverty.

It added that since the triple lock was introduced in 2011-12, the average pensioner household has seen its income after housing costs rise by 8.7% above the rate of inflation, with pensioner incomes now at a record level of £307 a week. 

While it was clear on its response to the triple lock, less clear was the commitment to pensions tax relief. Much speculation has been made in recent days that the Chancellor would cut higher-rate tax relief to raise money for extra funding of the NHS.

In its response the government states: “The government is aware that any changes to the pensions tax relief regime could have significant impacts for pension schemes, employers and individuals.

“While the government keeps all taxes under review, no consensus for either incremental or more radical reform of pensions tax relief has emerged since consultation in 2015.”

Responding to this, Nicky Morgan MP, chair of the Treasury Committee, comments: “Tax relief on pensions is not an effective or well-targeted way of incentivising saving, and the Committee encouraged the Government to consider replacing the lifetime allowance with a lower annual allowance.

“Following reports that the Chancellor is considering a range of options for reforming pension tax relief in the Budget, the Committee will keep a close watch on any announcements.”

But Tom Selby senior analyst at AJ Bell says: “Ripping the roots from the pension tax system just as automatic enrolment is bedding in would have been a monumental gamble by Spreadsheet Phil.

“Fundamental reform as some have suggested – such as introducing a flat-rate of tax relief – would hit right into Conservative heartlands and risk causing a rebellion among backbench MPs already riled by the Brexit negotiations.”

Lifetime Isas safe for now

The committee also criticised the much-maligned Lifetime Isa. This savings product was introduced to offer a boost to under-40s saving either towards their first homes or retirement. However, if the money is used for anything else, considerable penalties are imposed. Ms Morgan says: “The Committee also expressed concern about the complexity and perverse incentives of the Lifetime Isa.

“It is disappointing, therefore, that the Government ignored the Committee’s call for the Lifetime Isa to be abolished, and will press on without reform.”

In its response the government says:The government remains committed to supporting savers of all income levels and at all stages of life for a range of aims, such as saving towards the purchase of a first home, for a rainy day, or for retirement.

“The Lifetime Isa forms a key part of this support and the government is encouraged that many savers are participating and benefitting from the bonus which the government pays out to support the next generation in the habit of saving.”

Finally Mr Selby adds: “The Government is right to knock back calls for the Lifetime Isa to be scrapped altogether. Criticisms of the new savings vehicle didn’t appear to be based on any hard evidence.

“In fact, the Lisa has proven popular among younger savers and ditching it now – just as it gains traction in the UK – would have been a retrograde step.”

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All pension contributions

All pension contributions should be restricted to 20% tax relief as it's no longer for pensions but can be drawn out 25% of which is tax free so it's like a savings plan for anything. The triple lock should stay for this government same as increases in basic tax allowance, it's those in the 40% tax bracket which gain most when they increase allowances, it's that level they should freeze. As for pensioner household incomes it's single pensioners living alone which are hit worst as they have same outgoings as a couple on half the pension, many of us did not get chance of nice work pensions years ago on lower paid jobs. Bus pass should go back to paying a fee of say 50p for each trip off peak only and full fair at peak times so workers can get on the buses to and from work. If a free TV license is received it should be classed as taxable income so the better off bay a bit back.

If the chancellor tinkers

If the chancellor tinkers with either the triple lock or the tax relief on pension savings/investments he will undermine his credibility, that of the conservatives and people will move to investing in safer alternatives. Leave pensions alone

Who are these people who get

Who are these people who get £307 per week pension, I get £135

I can't see how the average

I can't see how the average pension is now £307- per week.
The Government must have included pensioners in the very generous Civil Service scheme to get this figure.