Another autumn means another Autumn Statement. This year's statement by the Chancellor was focused on things other than pensions – the U-turn on tax credits, infrastructure spending and house-building, and more departmental cuts.
However, there are a couple of pensions relevant items.
1. Pensions tax relief
The first item is the government's proposed changes to pensions tax relief, which it consulted on early in the year. The Chancellor confirmed that the government was considering the responses to that consultation and would publish a response at Budget 2016.
This will leave the pensions industry on tenterhooks as the government floated the idea of switching from an EET system (where contributions and investment returns are tax privileged, whilst the pension at the end is taxed) to a TEE system (where payments in are taxed, but the investment returns and end result are not).
Something to look forward to in the spring.
2. Auto-enrolment easement
The other main change relates to the auto-enrolment system. As the phase-in of these requirements on UK employers reaches its end the government has turned its attention to the next phase of the process – increasing the minimum employer and employee contribution rates. These had been due to increase to a combined 5 per cent in October 2017, and then to a combined 8 per cent in October 2018.
The government has decided to push this forward to the April following – and so the minimum 5 per cent rate will be introduced in April 2018, whilst the minimum 8 per cent rate will apply from April 2019. This has the welcome effect of linking the change dates to the tax year, and also pushing this burden a little further down the road for employers – and there is rarely any reason why an individual cannot put a little more into their pension themselves if they do wish to save more for their retirement.
3. Local Government Pension Scheme Wealth Funds
The final piece of pensions-related news in the Autumn Statement relates to the proposed pooling of the Local Government Pension Scheme funds into six British Wealth Funds, each with a minimum of £25 billion assets. The government has prepared guidance for administering authorities on how this will work in practice with a particular emphasis on reducing costs whilst achieving decent investment performance.
The auto-enrolment minimum contribution delay appears sensible giving smaller employers in particular a bit more time to get their affairs in order. The LGPS guidance mentions that the long-term aim of the British Wealth Funds will be to provide similar returns to those of large funds set up by similar organisations around the world. Only time will tell if this aspiration will be met.
The elephant in the room – the tax treatment of pensions – remains.
We can only look forward with bated breath to the next Budget, when the future of UK pensions will either be subject to a tectonic change with a brand new TEE system implemented or, alternatively, to a simplified tax relief system on the existing EET model, which will move the benefit of the £50 billion per year the government pays in tax relief from the well-off to lower-paid earners.