WMA Summer Budget Statement Reaction – 9th July 2015

The first fully Conservative Budget in 18 years was packed with big announcements and WMA, the trade association for the Wealth Management community, was delighted to see the Chancellor heralding the importance of savings and investment in his statement to “move from an economy built on debt to an economy built on the more secure and productive foundations of saving and long term investment”.

WMA warmly welcome the announced Green Paper consultation on reforming pensions tax relief and will be actively feeding in to the process and working closely with HM Treasury on it.  Getting the right incentives and helping people understand the risks and benefits of the new pension world is important.  Reforming the pension tax relief will be a potentially challenging process and WMA look forward to feeding in to the debate and helping to create a more straightforward and understandable approach.

Several of the changes announced are a boon to shifting the way people in the country are thinking.  They will help them to look positively at long term planning for their financial futures.  For example, the introduction of a £5000 dividend allowance and the removal of Dividend Tax Credits will give dividend taxation greater simplicity and transparency. The measures will reduce (or not affect) the amount of dividend tax paid by the majority of investors, which should promote retail investment in stocks and shares and encourage a wider spectrum of individuals to become involved in the investment process.  This is positive, though it is noted that some of those who have already invested and contributed to the economy will be penalised with an increase in tax.

On top of this there are other issues to be considered and WMA highlight that cutting the pensions tax relief for people earning more than £150,000 and scaling back the tax-free allowance, while earning some revenue for the Government, will actually hit professional workers predominantly in the South East taxed under PAYE hardest, and not the very rich. These hardworking savers are helping to fund wide ranging investments in growth projects while saving for their pensions to ensure that they are not a burden on the state in their old age, and contributing through these processes to the jobs and growth agenda.

At a time when focus should be on building a long term savings culture and encouraging investment in the economic fabric of the nation, partly through the new freedoms to invest personal pensions, it seems perverse to impose an extra tax burden on the main group of retail investors who are achieving this.

To compensate for this contradictory policy approach, at least part of the additional revenue must be used to inform the public about the benefits of long term savings and particularly investments, which are not widely understood.

Liz Field, CEO of the WMA, said: “cutting pensions tax relief sends an anti-saving message whatever guise it is in – whether a person earns £30,000 or £150,000, creeping taxation puts people off investing and saving for retirement and dis-incentivises those earning and saving less from trying to earn and save more in case they get caught by taxes coming lower and lower down the scale.

“These changes come after the Chancellor’s widely publicised pensions freedoms just four months ago; we must be mindful that constant shifts in Government policy can create confusion and be counterproductive to significant savings and investment objectives. The cultural shift that the WMA and the Chancellor are keen to promote has had a further boost today, but tax changes such as this may encourage people to spend their pension money, rather than keeping it for the long term.

“However, many of the messages from this Budget highlight that the Government understands the importance of savings and investment and the policies announced show that we are heading in the right direction – we should all strive to commit to this aim.”