Test Dev Pension schemes
18 Nov 2024
09:15 am -
09:15 am
Most pension scheme trustees, sponsors and members will be exhaling with relief after Rachel Reeves’s budget left pension savings almost untouched.
The most significant moment in the Chancellor's speech from a pensions perspective was the decision to move inherited pensions into inheritance tax from 2027. This is really a public acknowledgement that pensions are a wage in retirement and not a tool for estate planning.
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Some pension scheme members may need to revisit their arrangements for passing on assets after their death. But this change is a matter for financial advisers, not pension scheme governing bodies.
The consequences for pension savers and their employers were expected to be far more material, but it seems that the Chancellor listened to warnings from the pensions industry. Hopefully that (listening) is a sign of things to come!
The budget ended months of speculation Link
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Almost four months have passed since Labour won its landslide victory on 4 July. With the public finances tight and Labour promising to repair public services, Reeves appeared to have the UK’s pension schemes in her sights.
We warned that changes to the taxation of pensions could have unforeseen results – such as undermining the government’s desire to increase pension saving and to see more investment of pension fund assets in productive finance. But, with tax relief on pensions costing the Treasury about £50 billion a year we, like others in the industry, took seriously press reports that Reeves would raise billions of pounds by limiting this relief.
At first, the obvious option seemed to be to reduce the tax-free pension allowances for higher earners, but the government then briefed that this was no longer on the table. Reports then said Reeves would impose national insurance on employers’ pension contributions. This could have had various knock-on effects – the biggest being employers reducing their contributions, leading to smaller pension pots in retirement
Instead, Reeves has increased employers’ national insurance on earnings by 1.2 percentage point to 15% and reduced the threshold above which employers pay NI to £5,000 from £9,100. This, she said, would raise £25 billion.
Other measures that didn’t appear were reforming or scrapping salary sacrifice and reducing the generosity of tax-free lump sums. Both, in their different ways, would have been a headache to implement and could not have been done immediately – so this is also good news for pension schemes and savers.
Secular trends are transforming administration
TPR's focus on administration reflects secular trends that are transforming the role of the administrator. These include:
- Risk transfer: Buyouts of pension schemes hit a record last year, and regulators want to see more protection of pension savers through areas such as consumer duty. Once a scheme is bought out, the trustee, scheme actuary, legal adviser, and investment consultant fall away but promised benefits must still be administered. In some cases, the administrator stays in place; in others, a new administrator takes over.
- Maturity: As the UK population ages, the purpose of many schemes shifts from accumulation of retirement funds to paying pensions to members and their dependants. Our data shows that more than 60% of the defined benefit (DB) members we look after are receiving their pension.
01 SecondLondon UK Second Table Title - October 21, 2024 Press Release | Second 30 Nov 2024 |
And administrators must now rise to the challenges presented by what we at Aptia call the Administration Age.
TPR acknowledged administrators' vital role in safeguarding pensions. It also noted the challenges administrators face, including increased demand from savers, legislative change, new requirements such as pensions dashboards – as well as the need to modernise systems to meet today’s savers' expectations.
