The 2016 political scene was preoccupied in the middle of the year with the Brexit referendum but before that there was much apprehension about a possible overhaul of the pensions tax system (following a Government consultation on the subject last year).
March 2016 budget
The pension aspects of the March budget were limited and included the following:
1) Measures on the provision of pensions information and advice:
- New laws to increase the tax and national insurance advantages for employer-arranged pensions advice from £150 to £500 from April 2017;
- Consulting on introducing a ‘Pensions Advice Allowance’ to allow people before age 55 (exact age to be determined through consultation) to withdraw up to £500 tax free from their defined contribution pension pots to redeem against the cost of financial advice;
- Consulting on a single clear definition of financial advice to remove regulatory uncertainty and ensure that firms can offer consumers the help they need;
- Restructuring the delivery of public financial guidance to make it more effective. A consultation1 on this was launched on budget day (16 March) which outlined that a new advice delivery model (made up of a pensions guidance body and a money guidance body) will replace the Money Advice Service and merge the functions of the Pensions Advisory Service (‘TPAS’) and Pension Wise. The suggestion is that the new pensions guidance body (and the new money guidance body) will be funded by a pensions levy and a financial services levy though the details are yet to be ironed out. The Government has now announced, in response to views expressed by industry and consumer groups, that there will be a single guidance body and that the Government is to consult on its design;
- The introduction of a new ‘pensions dashboard’ by 2019 designed so that individuals can see, in one place, information about all of their pension savings.
2) Salary sacrifice – a sigh of relief for now ?
Although the Government confirmed its consideration of limits on the range of benefits that attract income tax and national insurance advantages when they are provided as part of salary sacrifice schemes, it also said that it did not intend this to include, amongst other things, pension saving (now confirmed in a recent consultation on the issue) though that does not preclude the Government from looking at this again in the future.
3) Other measures
- From April 2017, the introduction of a new savings product (the so-called ‘LISA’) where, in broad terms, any adult under 40 can save up to £4,000 per year and receive a ‘bonus’ from the Government of 25%. In broad terms, if the money is saved to buy a home or for retirement then the money can be accessed tax free, but it will also be accessible at any other time, subject to the loss of the Government ‘bonus’ (plus any interest or growth on it) and for a ‘small’ charge.
Although there has been some commentary on how this might affect auto enrolment, in the meantime, auto enrolment obligations continue to apply and employers should operate on a ‘business as usual’ basis in this regard, particularly given the Pensions Regulator’s statements on compliance (see below);
- Further amendments to the legislation in connection with the new DC pension flexibilities to ensure that they are working as intended;
- the Government keeping under review the issue of unfunded employment retirement benefit schemes.
So, a relatively ‘light touch’ budget for pensions, but should economic circumstances dictate it, pensions tax in particular could be looked at again in the future, which could have a significant impact on pension provision.
The Queen’s Speech
In the same tone as the March budget, the content of the Queen’s Speech was relatively uneventful on pensions, much of which had already been announced before (for example capping early exit charges in occupational pension schemes so that excessive fees do not prevent members from being able to exercise the new pensions freedoms, restructuring the delivery of public financial guidance through the creation of two new advisory bodies (see above)).
What was new was that there is to be tighter regulation in relation to master trusts, so that, for example, they will have to demonstrate that they meet strict new criteria before entering the market and taking money from employers or members, and the Pensions Regulator will have greater powers to authorise and supervise these schemes and take action when necessary.
Brexit and pensions
The shock result in the EU referendum has concentrated thoughts about the impact of Britain leaving the EU, in particular the legal implications. We discussed what Brexit might mean for pensions law in the August 2015 edition of Pensions Pieces. In essence our conclusion was that the vote to leave the EU has not in itself had an automatic impact on the UK legislation governing the operation of UK pension schemes, and although there may be some areas ripe for possible review, for example the TUPE pensions provisions, some of the more challenging aspects of pensions law such as the anti-discrimination legislation which has become part of the UK social fabric and section 67 of the Pensions Act 1995 and scheme amendments which do not have a European legislative root are unlikely to be affected even after the UK leaves.
However, pension schemes are also exposed to changes in economic circumstances which have been particularly turbulent following the referendum result and subsequent political upheaval, because of the effect on scheme investments and also (a concern for defined benefit schemes) on the strength of the covenant of the employer.
The Pensions Regulator has issued a statement on market volatility following the EU referendum, its key message to trustees and sponsors of occupational pension schemes being ‘to remain vigilant’ and review their circumstances but also to ‘continue to take a considered approach to action with a focus on the longer term’. The statement also considers issues such as the impact on the employer covenant, investment and funding volatility, issues for schemes currently carrying out a valuation and member communications.
Whether or not forthcoming EU legislation will apply in the UK will depend on the timing of the Brexit negotiations, their outcome and also what the UK may need to comply with for commercial reasons (for example, see below in relation to EU data protection legislation). In the meantime it would be sensible for trustees and sponsors to liaise with their advisers and maintain an appropriate watch on Brexit developments to determine how these may affect their schemes (and indeed the employer’s ability to support its pension arrangements) and what actions to carry out, if any, as a result. It also remains to be seen how much of the domestic legislative programme (not only in terms of content but also priorities) will be affected by the need for Brexit planning and measures.