Pensions and Lifetime Savings Association (PLSA) Director of Policy and Advocacy Nigel Peaple: "The Pensions and Lifetime Savings Association (PLSA) welcomes the plan outlined in today’s Budget to address the pensions tax administration anomaly that results in approximately 1.2 million lower earners – mostly women – in certain (Net Pay) schemes missing out on pensions tax relief.
On average, low earners are missing out on over £50 each per year. The PLSA has been calling on Government to fix this problem for some years. Indeed, it is something we highlighted in our submission to the Treasury in advance of the Budget. While the solution proposed by the Government is not the one preferred by the pensions industry – the P800 solution – which would have resulted in fully automatic tax top-ups, the Treasury’s approach will work provided individuals make a one-off claim for the payment. We look forward to working with Government to help publicise how people on low earnings can make a claim when the measures come into force."
Pensions tax relief
"It is very positive that the Government has listened to the PLSA and the wider pensions industry in recognising that more, not less saving is needed so that more people have a better income in retirement, and decided not to make any further changes to the current system of pensions taxation. In our submission to the Budget, we made clear that mooted changes to pensions tax relief would not have a materially positive impact on pension adequacy for the vast majority of savers, would result in substantially higher tax bills for three to four million savers, and would increase cost and complexity for pension providers."
Consultation on the pensions charge cap – performance fees
"The PLSA has long been a supporter of the current charge cap, which protects savers against high fees in default funds, and believe it is set at the correct level. In practice most pensions schemes operate well within the 0.75% cap, averaging 0.48% across all members. Measures to amend the charge cap, particularly related to the smoothing of performance fees, might make it a little easier for some schemes to invest in illiquid assets. However, we do not believe that alterations will necessarily lead to a material change in investment in illiquid assets. The Government has already introduced some changes to the charge cap which came into force earlier this month.
We would rather the Government allowed some time to see what effect these recent changes have before consulting on further amendments. The pensions industry is very open to investing in illiquid assets, such as infrastructure, provided they match the needs of pension scheme members and have the right investment characteristics, but this is a complex area, and we do not think the current charge cap is blocking such investments."
Mike Smedley, partner at Isio said: “This is a budget of inconsistencies. Make domestic flights cheaper whilst we try to reduce air emissions. Cut alcohol tax whilst ploughing more money into the NHS. And with pensions, whilst the government is finally creating a level playing field for lower earners on pensions tax relief – with the new Net Pay top-up arrangement - this won’t come into effect until 2024 and won’t be backdated. We’ve had over a decade of low earners being penalised for being in the ‘wrong’ type of pension scheme, and the Budget shows costs the cost of fixing the anomaly is £15m each year. Meanwhile the government has decided to waive £500million of tax each year from those public sector workers who will get pension windfalls from the McCloud judgement.”
Steven Cameron, Pensions Director at Aegon comments: There have been widespread concerns from across the pensions industry, that the Treasury will push ahead with controversial proposals around how to implement an increase in the Normal Minimum Pension Age. This is the earliest age when people can typically access their pension and with a few exceptions, will increase from 55 to 57 from April 2028.
“The Treasury has consulted on special transitional provisions to ‘protect’ a small minority of individuals who are in schemes whose rules by sheer accident of history give an ‘unqualified right’ to take benefits at age 55. While well meaning, these protections if implemented as proposed could create decades of complexity for pension schemes and many unintended consequences for members, with little real benefit.
“With no mention of this in the Budget papers, we now await the Finance Bill scheduled for 4 November to provide clarity. Unfortunately, it could be a case of a path paved with good intentions leading to significant future complexities.”
James Monk, head of DC Investment at Aon Employee Benefits, said: “Since the charge cap was announced, all those many moons ago, the industry has placed enormous emphasis on cost. Since then the regulator and consultants such as Aon have been working hard to shift that focus back towards member outcomes net of charges.
“This review is part of that effort and of the will to enable access to more illiquid, and potentially more expensive, assets to improve diversification in the future. However, It won't help employers and trusts make more effective decisions around which strategy is likely to provide its membership the best member outcome.
“Significant work needs to be done on developing the argument behind the value-add of illiquid assets in order to help employers and trusts make these decisions more effectively - and so that providers are not penalised by offering a more expensive, but more sophisticated, investment strategy."
Brian Henderson, Partner and Director of Consulting, Mercer, said: “We welcome the Government’s announcement today on a consultation on the charge cap and its impact on pension schemes and their ability to support the ‘help to grow’ agenda. We continue to be supportive of investment in illiquid or private markets due to the return premium offered, and if they can additionally be offered with suitable terms, then the growth of the UK economy could be aligned. However, illiquid assets tend to present some challenges for those who have oversight of pension schemes and some of the more fundamental challenges around governance, operational issues and liquidity will not be fixed by removing high charges or performance-based fee structures.“
“We welcome the Government’s announcement today on a consultation on the charge cap and its impact on pension schemes and their ability to support the ‘help to grow’ agenda. We continue to be supportive of investment in illiquid or private markets due to the return premium offered, and if they can additionally be offered with suitable terms, then the growth of the UK economy could be aligned. However, illiquid assets tend to present some challenges for those who have oversight of pension schemes and some of the more fundamental challenges around governance, operational issues and liquidity will not be fixed by removing high charges or performance-based fee structures.“
Susan Hanlon, Senior Associate, at Mercer said: “We welcome the Government’s announcement that it will pay top-ups to lower paid earners in pension schemes which receive tax relief via net pay arrangements. This will give members the full benefit of tax relief irrespective of the system their employer uses. It is good news for members and good news for pension schemes and their administrators that the Government have made the changes without increasing the already high burden of pension scheme administration.”
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