"This was not a pensions-free Budget," says Ian Neale from Aries Pension & Insurance Systems as he gives us some insight into Budget 2013.
It was an unashamedly political Budget, guaranteed to generate headlines about beer duty, fuel duty, and even recognising a moral duty to recompense Equitable Life with-profits annuity policyholders. We had to dig deeper to detect any evidence of a duty to encourage pension saving. There was no further reduction announced to the Annual Allowance, nor any attack on tax-free cash, a perennial fear. But this was not a pensions-free Budget.
The main news was that the flat-rate state pension is to arrive in April 2016, a year earlier than the minister told Parliament in January would be the earliest possible date. Some good reasons were given for this surprise news, but possibly the most irresistible had been the Treasury's realisation that an extra £5.5bn in national insurance contributions would arrive, as a result of the concurrent cessation of defined benefit (DB) contracting-out.
We were told that this will not be treated as a revenue-generating opportunity: some of it is going to fund a cut in employer National Insurance Contributions (NICs), which for the smallest employers will entirely remove the obligation to pay NICs. Nevertheless it serves to illustrate how the Treasury rules over other Departments. It has also been decided that a new statutory objective should be imposed on The Pensions Regulator, to consider the long-term affordability of deficit recovery plans to sponsoring employers.
Other, less prominent, announcements included some gratifying results from consultation with the industry. There had been little support for asset-smoothing to reduce scheme deficits - though that might have resulted from the artful way in which the Department for Work and Pensions' (DWP) consultation questions were constructed – and so the Government will not be going ahead with that.
There is to be a review by the Government Actuary's Department of the basis for construction of the tables governing maximum income from drawdown. Presently the figures are based on 15-year gilt yields alone. The ABI has argued strongly for a less simplistic basis which is more closely aligned to the annuity market, using long-term gilts and corporate bond rates. There are no chickens to be counted yet, but some hope nonetheless.
The Self-Invested Personal Pension (SIPP) and Small Self Administered Schemes (SSAS) community will have been encouraged to hear that the Government is to consult on whether the investment restrictions should be relaxed to allow conversions of empty commercial property for residential use. Those with memories of what happened in this sector eight years ago, when the option for residential property investment was withdrawn, will not be holding their breath on this one either, however.
Finally, having received encouragement from industry representatives with whom HMRC held an informal consultation, the Government said it will proceed with a new form of protection against a lifetime allowance charge. Probably to be called Individual Protection (not Personalised), this will be included in next year's Finance Bill and will allow pension contributions to continue for individuals who have accrued £1.25m+ at 06.04.2014.
Written by Ian Neale, director, Aries Pension & Insurance Systems Ltd
ian@ariespensions.co.uk
