Melch,
Re: cutting the annual allowance, on the surface of it, chopping tax free cash and/or chipping away at annual allowances are obvious candidates for George Osborne raising cash. What might the impact on ‘us’ be (I know I’m no longer in – old habits, etc) if the annual allowance was cut? If the annual allowance was reduced from £50,000 to say, £30,000, it would affect servicemen and women in final salary linked schemes but only if they have already built up substantial benefits; in other words, officers in middle/senior manager equiv positions. This is because those in final salary linked schemes have a contribution that is based on the increase in value of their pension benefits each year, and not just what you put in each year.
And that is why it unfairly affects those on final salary scheme and I imagine that the Pensions Society will be acutely aware of this. A similar claim that civilian employees in similar salary positions with a SIPP or personal pension and defined contribution occupational schemes who are ‘catching up’ on unpaid contributions from earlier years would also lose out is a red herring. There are very few civvy employees who can afford to save £30,000+ a year into a pension anyway. The net effect on SP is that once again, there is uncertainty in something they have little control over, and an increased possibility that their futures are no longer as certain as they once thought.
Another option is to reduce the amount that can be taken tax free at retirement – currently 25% of the accumulated fund. It would create uproar if individuals who had planned their retirement expecting to be able to take the tax-free sums suddenly found that it was taxable, especially so as more and more people post 55 still have mortgages to find deposits for. At a time when the g’ment is introducing auto-enrolment into occupational pension schemes – and has just published the paper that I mentioned yesterday on pension invigoration' to encourage higher pension saving – I think that any draconian measures would only serve to distance people from retirement planning.
Having said that, it might be that because these measures create so many problems for those in final salary schemes, that once the AFPS coup de grace IS finally administered, the only sound from the Officers Mess will be one long sigh of relief..?