Yesterday’s Autumn statement contained no major surprises for pensions, for a change. No announcement was made on the reform of pensions tax relief but the Treasury has confirmed that this will be made in the Budget next Spring. However, the increases in the auto-enrolment minimum contribution rates scheduled for October 2017 and 2018 respectively have been postponed and the Chancellor has confirmed the starting rate for the new single tier state pension.
The key pension-related announcements in yesterday’s Autumn statement were:
- Pensions tax relief consultation – The Government will publish its response at Budget 2016.
- Automatic enrolment minimum contribution rates – The Government will delay the next two scheduled increases in automatic enrolment minimum contribution rates by 6 months each, to align these changes with the start of the tax year. This will mean that the increases scheduled for October 2017 and 2018 will be pushed back to April 2018 and 2019 respectively, saving the Treasury over £800m in pensions tax relief.
- LGPS pooling - The Government has published guidance for pooling Local Government Pension Scheme Fund assets into up to 6 British Wealth Funds, containing at least £25 billion of Scheme assets each. The Government is inviting administering authorities to come forward with their proposals for new pooled structures in line with the guidance to significantly reduce costs while maintaining overall investment performance, with the wider ambition of matching the infrastructure investment levels of the top global pension funds.
- Secondary market for annuities – The Government will set out further details on its plans to create a secondary market for annuities, including the framework for consumer protection, in its consultation response this December.
- Basic state pension - The basic state pension will increase to £119.30 per week.
- Single tier state pension - The new full single tier state pension will be set at £155.65 when it is introduced in April 2016.
- Salary sacrifice – The Government has reiterated that it remains concerned about the growth of salary sacrifice arrangements and is considering what action, if any, is necessary. The Government intends to gather further evidence, including from employers, to inform its approach.
- Inheritance tax and drawdown pensions – The Government has confirmed that it will legislate to ensure a charge to inheritance tax will not arise when an individual designates funds for drawdown but does not draw all of the funds before death. This will be backdated to apply to deaths on or after 6 April 2011.
- Dependant scheme pensions – Legislation will be introduced to simplify the test that takes place when a dependant’s scheme pension is payable.
- Bridging pensions – Following the introduction of a single tier pension from 6 April 2016, legislation will be introduced to enable the pension tax rules on bridging pensions to be aligned with Department for Work and Pensions legislation.
Despite performing a U-turn on tax credits the Chancellor resisted announcing radical changes to pensions tax relief, for now. The outcome of the Treasury’s consultation on this will have a major impact on the future shape and direction of the pensions industry and the adequacy of retirement savings, so all eyes will be on the dispatch box next Spring.
The Chancellor did dip into the pensions pot, however, to help balance the books by announcing a delay of 6 months for the increases to the auto-enrolment minimum contribution rates originally scheduled for October 2017 and 2018 respectively. As noted above, this is expected to save the Treasury over £800m in tax relief.
The Government has also reiterated that it remains concerned about the growth of salary sacrifice arrangements. Employers need to monitor this and be prepared to respond to any change in policy.