Home  /  Investment news  /  Economic forecasts dominate Autumn Statement

Economic forecasts dominate Autumn Statement

Published: 24 November 2016

In an Autumn Statement light on news for savers and investors, Philip Hammond reset expectations for the UK economy in the context of Brexit.

Yesterday’s statement saw growth forecasts for the UK economy downrated for the next few years in the face of greater uncertainty, and the depreciation of sterling putting upward pressure on inflation.

The UK’s debt and borrowing are also predicted to reduce at a slower rate than previously forecast, with the government aiming to balance the books as early as possible in the next parliament.

Increased investment in infrastructure and innovation

Of our predictions for the Autumn Statement last week, increased investment in infrastructure and innovation did feature, potentially boosting businesses in those sectors.

Measures to support the building of up to 140,000 new homes, invest in England’s transport infrastructure, help make the UK a world leader for the introduction of 5G mobile technology and an extra £400 million for innovative start-up businesses were all announced.

Changes to salary sacrifice and tax rules for pensions in drawdown

From April 2017 salary sacrifice - the tax-saving mechanism that allows employees to give up part of their salary in exchange for benefits – is being removed as predicted, for all benefits apart from ultra-low emission cars, pension savings, child care and the cycle to work scheme.

Changes to pension tax relief and the scrapping of the lifetime allowance for pension savings did not transpire. But the ‘Money Purchase Annual Allowance’ - which sets a cap on how much anyone who is already drawing down on their pension funds can continue to pay in and still benefit from tax relief – will reduce from £10,000 to £4,000 in April next year.

Alliance Trust Savings reaction

Sara Wilson, Head of Platform Proposition at Alliance Trust Savings, welcomes preservation of the salary sacrifice option for pension savers, but believes reduction in the Money Purchase Annual Allowance for pensions in drawdown may present challenges for some.

“We were relieved to see no major tinkering with ISA and Pension arrangements in this Autumn Statement, and pension savings spared from the end of salary sacrifice for many other employee benefits in April next year.

In time, we would still like to see the Lifetime Allowance for pensions scrapped, rewarding those who have built up considerable savings in their pensions over the years.

The planned reduction from £10,000 to £4,000 in the Money Purchase Annual Allowance could limit the ability of those still in work and – for good reason - drawing down pension funds (for example to fund a divorce or manage a gradual wind down to full retirement) to rebuild their pots in the longer term. So, we are pleased to see the Government plans to consult on this particular issue.

We do still believe tax relief for higher earners will be reduced in time. If you are a higher earner you may want to think about maximising pensions contributions whilst higher rate relief is still available. Who knows what will happen in the Budget next year.”

Other points of interest

Economic forecasts and fiscal policy aside, with Philip Hammond taking a ‘steady as she goes’ approach George Osborne’s existing policies and plans for reform were left largely undisturbed.

For example, the pensions ‘triple lock’ that guarantees to increase the state pension every year by the higher of inflation, average earnings or a minimum of 2.5% will stay.

The personal tax free allowance for income tax also rises from £11,000 to £11,500 in April next year.

For those interested in the detail, you can find a full round-up of the Autumn Statement in this summary, prepared for us by Taxbriefs Ltd.

Morals and money

Important information

These articles are designed to help investors make their own investment decisions. They do not constitute a personal recommendation to invest. If you have any doubts as to their suitability you should seek expert advice. Please be aware that the value of investments can fall as well as rise so you could get back less than you invest.

Your existing pension may have valuable benefits which you might lose when you transfer.

Laws and tax rules may change in the future without notice. The information here is our understanding in November 2016.This information takes no account of your personal circumstances which may have an impact on tax treatment.

Past performance is not a guide to future performance.

Top up your pension now

If you already have a SIPP with Alliance Trust Savings, topping up is easy. Simply login to your account and add to it from there, or call our client services team on 01382 573737.

If you don’t have a SIPP with us yet, you can apply online now.

login       Apply

Subscribe to Alliance Trust Savings updates, news and offers

subscribe

Alliance Trust Savings Limited is a subsidiary of Alliance Trust PLC and is registered in Scotland No. SC 98767, registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings gives no financial or investment advice.