Pension Funds Insider

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Sunny Summer Statement

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The usual frenetic febrile flurry of fears for pensions ahead of a major announcement by the Chancellor proved, once again today, unwarranted. Nothing about the triple lock rule for state pension increases; no mention of NICs on pensions; and above all, no dramatic seismic shift on tax relief.  Rishi Sunak makes headlines of a different kind.

The only mention of pensions came with the announcement of a new Kickstart Scheme in Great Britain (thus presumably excluding Northern Ireland). The Government will provide six months’ funding for new jobs for those aged 16-24 who are on Universal Credit and are deemed to be at risk of long-term unemployment.

Funding available for each job will cover 100% of the relevant National Minimum Wage for 25 hours a week, plus the associated employer National Insurance contributions and employer minimum automatic enrolment (AE) contributions.

The commitment to cover the 8% minimum pension contributions is symbolic of Government commitment to auto-enrolment, but it will actually cost very little. Only those aged at least 22 have to be auto-enrolled, and although younger workers can choose to opt in to a qualifying pension scheme, their pay will not reach the £10k pa AE earnings trigger so they would not benefit.

Minimum wage for the 22-24 age group is £8.20 per hour, which means the maximum Government funding per 22-24 year-old will be £5,330. The first £3,120 is not ‘qualifying earnings’; so the total minimum AE contributions per employee will be 8% of £2,210, ie £176.80.   This is just over 3.3% of their Government-funded pay.

The Government will no doubt be hoping that employers – who under Kickstart will also get their 13.8% National Insurance Contributions (£4.97 per week per 22-24 year old) refunded – will find it makes sense to provide full-time employment for many of those taken on under Kickstart.
A good percentage of these new jobs might be created in the hospitality and tourism sector, which also received a much-needed boost via a six-month 75% cut in the VAT charged on food, non-alcoholic drinks, accommodation and admission to attractions.

Mr Sunak has initially committed up to £2bn to Kickstart, but has not capped it: very sensibly, because it could deliver a net benefit to the Exchequer if it succeeds in cementing a path into sustainable employment in place of Universal Credit.

Its success will depend a lot on whether the Treasury can overcome its innately British predilection for intricately crafted rules of access. The furlough arrangements have proved a stiff challenge for many employers to negotiate. Not for nothing has the phrase “the devil’s in the detail” become a modern-day cliché.

Ian Neale, Director, Aries Insight.