There was lots of speculation in the lead up to the Budget this year on changes to Pensions Tax Relief. However, only minor changes were announced to the Lifetime Allowance. Additional measures impacting pension schemes were announced on the Charge Cap and Green Gilts. The main areas affecting pensions have been highlighted in this member briefing.
LIFETIME ALLOWANCE FROZEN
In the Budget the Chancellor froze the pension Lifetime Allowance at £1,073,100, up to and including 2025-26. This is expected to raise revenue each year, rising to £300m for the Exchequer in 2025-26.
The vast majority of savers will not be affected by the freeze. However, around 10% are savers are expected to be impacted, usually those on higher salaries with a lot of pensions savings, such as senior doctors and clinicians.
It will also increase the administrative burden and cost to pension schemes. Piecemeal changes like this are unhelpful in sustaining confidence in pension saving, however, given the pressure on the public finances this is not a surprising choice from the Government.
NO RESPONSE ON PENSIONS TAX ADMINISTRATION CALL FOR EVIDENCE
The Budget did not include a response on the Pensions Tax Administration Call for Evidence released in 2020, which looked at how to resolve the Net Pay / Relief at Source anomaly.
The pensions industry is united in believing that the best solution is for HMRC to make updates to its P800 process. We understand that HM Treasury is undertaking further assessment of this issue.
CONSULTATION ON CHARGE CAP ANNOUNCED
The Chancellor has announced that the Government will publish a consultation within the coming month on whether certain costs within the charge cap affect pension schemes’ ability to invest in a broader range of assets. He also confirmed that the DWP plans to publish draft regulations that will smooth out certain performance over a multi-year period.
The PLSA has responded to previous consultations on this, and we recognise that this is a complex matter. We will ensure we keep members informed of how this progresses, and that their views are reflected in the consultation.
FIRST GREEN GILT TO BE LAUNCHED LATER THIS YEAR
The Chancellor confirmed that the Government will issue its first sovereign green bond this Summer, with a further issuance later in 2021, totalling a minimum of £15 billion. A green gilt framework will be published in June, detailing the types of expenditure that will be financed.
We welcome this announcement, which is in line with asks made in our October 2020 report, A Changing Climate, and will hopefully make it easier for pension funds to invest in a climate aware way.
The Chancellor has also confirmed a UK Infrastructure Bank will be launched this year, as will a green retail savings product through NS&I in the summer.
LISTINGS REVIEW PUBLISHED
Finally, we would also flag the publication of Lord Hill’s review into the rules of the London Stock Exchange premium listing rules, published earlier today. The response recommends a reduction in the current free float rules (from 25% to 15%), and the introduction of dual class share structures in premium listings. The report also recommends a review of the prospective regime and a rebranding of non-premium listings.
The PLSA submitted our views to this Call for Evidence earlier this year. We opposed changes to the free float and dual class rules. We note the Chancellor has committed to work with the FCA on consulting on this, and we will ensure that we engage in this process.
IN OTHER SAVINGS NEWS
The Personal Allowance will rise with CPI as planned to £12,570 from April 2021 and will remain at this level until April 2026. The income tax higher rate will rise as planned to £50,270 from April 2021 and will remain at this level until April 2026. This is likely to bring in £8 billion per year.
From 2023, Corporation Tax will rise fom 19% to 25%. Nineteen per cent for those with profits of £50k or below and with a taper up to £250k. The Chancellor said that this will mainly hit 10% of the most profitable businesses, but it does represent the first increase in corporation tax in more than 40 years.
The Chancellor also announced super tax deductions for business capital investment for the next two years.
The Job Retention Scheme is extended until the end of September. The rules remain that employers will have to continue paying pension contributions themselves. This means we will not know the true effect on the job market of economic conditions until at least another 6 months. This may in turn have an effect on automatic enrolment.