Articles - Three pension predictions and a wish

With the Autumn Statement fast approaching on the 22 November, the rumour mill is in full swing around what Jeremy Hunt could reveal from his red box. David Brooks, Head of Policy at leading independent consultancy Broadstone, looks at three areas impacting the pensions’ world that might make it into the Chancellor of the Exchequer’s Statement in three weeks’ time.

 Prediction 1: Pension scheme investment in productive finance
 Given the focus on unlocking pension scheme investment, with the most recent rumours focusing on the role of the British Business Bank, it seems likely that productive finance will feature in the upcoming Autumn Statement.

 The government must weigh up regulatory over-reach that threatens member security with its desire to direct more capital back into the UK’s businesses, economy, infrastructure and sustainability projects.

 David Brooks commented: “Mandating Defined Benefit (DB) pension scheme investment in specific asset classes or products must be avoided at all costs. The rhetoric for DB schemes does seem to be softening with The Pensions Regulator noting that they’re not looking for that power. In addition, Defined Contribution (DC) fund managers seem to be willing participants. What is central is that Trustees must meet their fiduciary duty to make the strategic investment decisions that protect the security of their members. However, if more investment opportunities can be created, then pension schemes will naturally be encouraged to make strategic decisions that suit their time horizons and risk appetite while still meeting the government’s aims.”

 Prediction 2: The abolition of the Lifetime Allowance
 The Spring Budget saw the announcement that the Lifetime Allowance (LTA) was to be abolished. The first transitional stage has already been achieved with the temporary replacement of the 55% and 25% tax charges on LTA excess.

 However, the second stage completes the abolition by removing the LTA from the statute book which has run into technical difficulties and complexities which mean it may have to be extended by a year to April 2025.

 David Brooks commented: “Scrapping the LTA was a strategic move made by Mr Hunt to encourage older workers – especially doctors – to remain in the workforce and ease the UK’s health crisis while simplifying the tax system. Financial planning requires policy consistency. The worry for workers is that pushing the abolition of the LTA back to 2025 puts it at risk of being reversed should Labour form the next government given it has committed to re-instating the tax creating uncertainty. It may become an ideological decision to push it through to ensure it is harder to reinstate.”

 Prediction 3: Tax-breaks for ISAs and reform of LISAs
 The ISA space is very complex so that may also be in the crosshairs of the Chancellor.

 There are suggestions that a new product could be created so that savers can hold stocks & shares alongside cash and/or increase allowances. There are also discussions around minimising penalties on the Lifetime ISA to make that more attractive given the low take-up and its aim to boost saving for later-life and home ownership.

 David Brooks commented: “The ISA and LISA regime has been oft tinkered with by successive governments to encourage greater saving and provide alternatives to existing products. While we do not want further complications that could deter or confuse savers, initiatives to boost saving, especially pension saving, and home ownership are much needed.”

 A wish! Bringing more people into the auto-enrolment evolution
 Auto-enrolment has transformed the DC space, ushering millions more savers into pensions, yet amid fears of under-saving there are also worries about ineligibility rates.

 A recent report identifies 10.9 million ineligible workers, increasingly due to lower income jobs or multiple jobholders, and disproportionately impacts women.

 David Brooks commented: “The policy aim of auto-enrolment was to help the low- and median-income workers. Pension saving may possibly not be right for them but to exclude so many seems an arbitrary way to determine if a pension, with employer contribution, is the right choice.

 “Phasing in the improvements to automatic enrolment via the private members bill are relatively minor in the grand scheme of things. Extending the age to 18 would improve savings for a relatively small number of young people and so should be done with little fuss. It will help those people begin their savings journey.”

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