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Budget Statement – No Real Surprises On Pensions

Budget Statement – No Real Surprises On Pensions

Sarah Phillips

George Osborne delivered his 2013 Budget in a statement yesterday.  There were few changes affecting pensions and, thankfully, no big surprises. 

  • The start of the flat rate state pension has been brought forward a year from 2017 to 2016. This will undoubtedly benefit many, particularly women and the self-employed.
  • As a result of the move to a flat rate state pension, members of defined benefit schemes will not be able to contract out of the state second pension from 2016/17.  This means that members and employers will no longer be entitled to pay national insurance contributions at a reduced rate.
  • As announced in the Autumn Statement 2012, the lifetime allowance for pension savings will reduce from £1.5 million to £1.25 million from 2014/15.  As part of this change, the Government will offer a fixed protection regime to help members with higher levels of savings. 
  • As announced in the Autumn Statement 2012, the annual allowance for pension savings will reduce from £50,000 to £40,000 from 2014/15.
  • The Government will increase the capped drawdown limit from 100% to 120% of the value of an equivalent annuity from 26 March 2013.
  • The personal allowance for tax purposes will increase to £10,000 from April 2014. As a result the numbers being automatically enrolled into a workplace pension scheme will drop from previously given estimates.  This is because one of the triggers for a worker to be automatically enrolled is linked to the personal allowance. 
  • The Pensions Regulator will be given a new objective ‘to support scheme funding arrangements that are compatible with sustainable growth for the sponsoring employer and fully consistent with the 2004 funding legislation’. This means that the Regulator will need to consider the affordability of pension contributions for the sponsoring employer as well as the security of members and the potential impact of any decision on the Pension Protection Fund.  The precise wording of the new objective is likely to be subject to consultation and will be set out in legislation.  It will also be subject to review after 6 months. 
  • The Government has decided not to pursue asset and liability smoothing for pension schemes.

The new objective for the Pensions Regulator was perhaps the closest thing to a surprise, as it had received a distinctly cold reception from the pensions industry when it was first suggested.  However, in the current economic climate and with so many employers struggling to balance investing in their business and paying ever increasing contributions to fund their defined benefit pension schemes, it was probably inevitable.

So the pensions industry collectively breathed a sigh of relief late yesterday afternoon  - no more major tinkering with pensions and respite from the almost incessant pensions reform of the last few years.

Sarah Phillips
Partner

LChalmers