The pensions industry is awaiting tomorrow’s (11 March) Budget with bated breath, with some predicting the biggest system shake-up since the introduction of pension freedoms in 2015.

Although nothing has been confirmed yet, it is expected that Chancellor Rishi Sunak will address issues with the tapered annual allowance, pension tax relief, inflation measures and auto-enrolment.

The taper is the top priority for many in the industry, as the NHS continues to suffer from senior staff reducing their hours to avoid being caught out by the threshold.

However, few believe that the government will completely scrap the taper, as many are hoping.

“The taper, which can see the annual allowance of high earners reduced from £40,000 to £10,000, has created capacity problems in the NHS, where senior doctors with generous defined benefit pensions have been turning down extra shifts for fear of being hit with huge tax bills as a result,” began AJ Bell senior analyst, Tom Selby.

“The simplest solution here would be to scrap the taper altogether, at a cost of around £1bn a year. Alternatively, the Chancellor could expand the ‘threshold’ and ‘adjusted’ income measures used to determine whether the taper takes hold.”

Barnett Waddingham specialist in executive pensions, Nilesh Shah, warned that any changes to pensions tax is not likely to “happen instantly” as the Budget is occurring so close to the new tax year.

He continued: “Action needs to be taken whether or not the implementation process is immediate. Those on the cusp of activating the tapered annual allowance need the reassurance that the problem is being addressed for the long-term. For doctors and clinicians, reducing hours or leaving the NHS should not be the best available option.

“Ultimately, the pension system needs simplifying across the board. The Budget is the opportunity to address some of the policies that have been the subject of scrutiny, but it will take commitment to make the changes happen in the long term.”

Moneyhub CEO, Samantha Seaton, noted that “far too many people” are unaware of the long-term impact of pension savings.

Seaton added: “Without a beneficial and fair relief system there may be too little incentive to put spare money away into a pension pot. At present the tax relief system favours high earners, encouraging them to save large chunks into their pension - but there isn’t the same incentive for people on smaller incomes.”

There were rumours that former Chancellor, Sajid Javid, was planning to cut higher-rate tax relief, however it has also been reported that the new Chancellor quickly scrapped the plans following a backlash.

“Such a move would also further fuel the mounting pensions crisis among self-employed workers,” said Selby. “Not only are these people already excluded from automatic enrolment, but many have little or no pension savings at all. Removing the ability to claim higher-rate relief would be another kick in the teeth.”

Helping the self-employed in saving for retirement is an issue that industry figures are expecting Sunak to tackle in the Budget, either through reforming tax relief or auto-enrolment.

Aegon pensions director, Steven Cameron, stated: “Incentivising greater savings should benefit the economy. While automatic enrolment has brought millions of additional employees into workplace pensions, most are not saving enough to maintain their lifestyle in retirement. Worse still, lower earners and the self-employed are excluded entirely.

“This means pension tax relief does and will continue to play an important role in both incentivising and rewarding locking money away for the future. The current approach means deferring pay through paying into a pension comes with deferred income tax until you take a retirement income.

“But the overall system of reliefs, limits and allowances is now fiendishly complex, and needs sorted not just for NHS professionals.

He concluded, however, that any potential “radical change” to tax relief, should “only be considered after detailed consultation on all the issues and consequences”.

A consultation on the change from RPI to CPIH as an inflation measure is also anticipated, although it is expected to be on when the change should occur, rather than if.

Investment Association chief executive, Chris Cummings, recommended that the government consults with shareholders "on the merits and potential impacts of a switch from the RPI to CPI including housing costs, before proceeding with the change which could impact defined benefit pensions".

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