As expected, there weren’t many changes announced to personal pensions in yesterday’s Autumn Statement.
We already saw significant announcements in March around the lifetime allowance (LTA) abolition and the increases to the annual allowances. Today was more about wider policy, including options for pension funds to invest in more illiquid assets.
However, this isn’t something that can be forced because pension scheme trustees need to ensure they are doing the best for the members and not just using the funds to help provide growth due to the size of the available pot.
The ‘pot for life’ being linked to the potential expansion of collective defined contribution schemes in the future was a new twist
The announcement that there will be a call for evidence on a ‘pot for life’ pensions savings model, which looks at contributions that would have been directed to auto-enrolment schemes being directed to a provider of the individual’s choice, was no surprise. But this being linked to the potential expansion of collective defined contribution schemes in the future was a new twist.
The first part could be a great thing for individuals who have already built-up significant pension funds and who would rather have everything in one place, avoiding the auto-enrolment scheme entirely.
If it goes through, though, it would put extra pressure on employers and the administrative burden of paying money to a variety of different schemes each month could mean significant time and cost added to payroll processes.
The pot for life concept has been compared to the Australian super funds arrangements, but we don’t have anything akin to this available to receive such funds, so this concept would need to be brought into the mainstream with approved providers being regulated accordingly.
Changes to NI contributions for individuals has little impact on pension savings unless the savings are diverted into their pension pots
We should also remember, pensions do not sit in isolation, so any changes to taxation have an impact on pensions and their value to savers.
A reduction in income tax would have made a difference, mainly in relation to tax reclaims received by pension schemes or lower deductions made through net pay schemes to achieve the same input.
However, changes to National Insurance (NI) contributions for individuals has little impact on pension savings unless the savings are diverted into their pension pots.
The lack of changes with regards to employer NI will mean less of a concern for those using salary sacrifice and benefit from the employer saving. If this had been reduced, individuals could have seen a cut in the benefits they received from salary sacrifice.
In the underlying documents we also have confirmation that the legislation to abolish the LTA will be pushed through to commence in 2024, against calls from the industry to delay.
The announcement usual triple lock rules will stick means we will see an increase of 8.5% in April for both the old and new state pensions
We still wait to see the full legislation, but it is well understood there will be new limits to get our heads around to test tax free cash in lifetime, as well as lump sum benefits in ill heath and on death.
Last but by no means least, we had confirmation the chancellor will honour the triple lock this year.
It isn’t compulsory for the Conservatives to follow this ‘promise’ and they could have played around with the factors used to determine the increases in state pension. However, the announcement that the usual rules will stick means we will see an increase of 8.5% in April for both the old and new state pensions.
Claire Trott is divisional director, retirement and holistic planning, at St James’ Place
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