Further changes to pensions are ahead but when will we get clarity, asks KATIE MEARNS
Another year, another Autumn Statement. Much of what we heard was possibly offered with a likely General Election in mind, but one area of import that did get a mention was that of pensions. The pre-briefing of this year’s Statement gave us several clues as to what was coming. This meant the proposed ‘pot for life’ pension reform announced by the Chancellor was no surprise. And the initial response has been interesting.
The reform would turn the current workplace pensions process, which is working well, on its head. In short, potentially asking employers to pay contributions to member nominated pension plans, so the pension follows the employee as they move from job to job. Maybe it could work, but will it drive better member outcomes at retirement, allowing employers to effectively succession plan?
Imagine the complexity of managing a payroll file with multiple pension providers. Also, if we have a limited range of ‘super’ workplace pension schemes with little relationship to an employer, price caps would be needed and the choice may end up being ‘vanilla’, unlike the well-designed workplace pension plans used today, which help to attract and retain people.
Of course, change can be good, but constant change in the pensions industry, and indeed those overseeing it in government, is not ideal. In fact we’ve had three different ministers in the last year or so. All in, not good for the industry or members.
We know no significant change will happen soon, there was no Pensions Bill in the recent King’s Speech, so new regulations can’t happen in this parliamentary session. This is despite the fact there are 24.4m* members in workplace pension schemes being used for auto-enrolment, with assets of £55.7bn.
Auto-enrolment has been a success and means many more people are saving for retirement but no room for a Pensions Bill, leaving many policies in limbo given the proximity of the next general election.
And a new government will have a long ‘to do’ list, so the challenge is when will a proper focus on pensions provision return to government policy? What is certain now is the extension of the scope for auto-enrolment pensions has been given royal assent. This means The Pensions (extension of Automatic Enrolment) Act 2023 will allow new regulations to reduce the age for auto-enrolment to 18 and remove the lower limit for qualifying earnings.
It’s not certain yet when the new regulations will come in but it’s likely to happen in 2024. Less contentious and more welcome in the Autumn Statement is the reduction in employee National Insurance contributions. The Chancellor reckons the 2% reduction is the biggest tax cut since the 1980s. Perhaps some members may be in a position to contribute this additional money to their current pension pots to help them save for their retirement.
The subject of pensions is already a complex one, and businesses could certainly benefit from a period of stability. Our Corporate Benefits team has seen a growing number of pension enquiries throughout the year and with the proposed changes, we expect this to continue.
As we approach the end of the year, if you are running a business and you are assessing the potential impacts of the auto-enrolment changes on your business and your people, including mitigations for any increased costs, the best advice would be to get some advice, as soon as possible.
Katie Mearns works in Corporate Benefits at Aberdein Considine
*January 2023, The Pensions Regulator (https://www.thepensionsregulator.gov.uk/en/document-
library/research-and-analysis/dc-trust-scheme-return-data-2022-2023)
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