The Budget 2013 held no particular surprises for the pensions sector, but there were several announcements and confirmations worthy of note:
- Single Tier State Pension
The Government confirmed that a £144 flat-rate state pension will be introduced in 2016. Alongside this, contracting out of the state second pension will be scrapped. In an effort to provide enhanced clarity and benefit, everyone will pay National Insurance Contributions at the same rate and establish access to the same single-tier pension.
- Inflation Target
The inflation target will remain set at 2%. The Monetary Policy Committee will be required to clarify the trade-offs involved in setting monetary policy to meet a forward looking inflation target.
- The Pensions Regulator – New Objective
A statutory objective will be given to The Pensions Regulator. Full details will be set out in upcoming legislation, but the objective will be designed to 'support scheme funding arrangements that are compatible with sustainable growth for the sponsoring employer'. The Pensions Regulator will update its Code of Practice to incorporate its new objective.
The debated prospect of allowing smoothing of assets and liabilities in scheme funding valuations has been shelved.
- Infrastructure Investment
From 2015-16, capital investment in infrastructure will increase by £3 billion a year.
As anticipated, the pensions tax allowances will be reduced, with the annual allowance falling to £40,000 (from £50,000) and the lifetime allowance falling to £1.25 million (from £1.5 million). These new allowances will take effect from the 2014/2015 tax year.
- Equitable Life Compensation Scheme
The Government will be extending the Equitable Life Compensation Scheme, awarding £5,000 to those holding with-profits policies before 1992. An additional £5,000 will be given to the individuals receiving pension credit.
For full details of the Budget Announcements, please see: