Did the Chancellor deliver on social care?

Despite widespread expectation of a cut to the annual allowance, this year’s Budget did not mention cuts to pensions tax relief, nor did pensions feature in the Chancellor’s Budget speech on October 29.

However, the lifetime allowance for pensions is set to increase by £25,000 to £1.055m in 2019 to 2020.

While the government's decision not to cut back pension tax reliefs has been welcomed by many, others eager to plan for their contribution to social care costs will be frustrated that the promised Green Paper is still in the works, Steven Cameron, pensions director at Aegon, points out.

We urgently need concrete, long-term proposals in the promised Green Paper on how to tackle the huge issue of funding social care costs.Steven Cameron

So what major changes did the Budget 2018 deliver – and what was left out – on pensions and social care?

Local authorities will get an extra £650m of funding towards social care in the coming year, while the Green Paper on the issue is due to be published soon.

Mr Hammond has pledged to put social care on a fairer and more sustainable footing, with short-term funding of £240m in 2018 to 2019, £240m for adult social care in 2019 to 2020, and an additional £410m for adult and children’s social care in 2019 to 2020.

Mr Cameron says, while the commitment to provide additional funding will “offer some relief to councils struggling with ever-increasing demands”, it is “little more than a temporary sticking plaster measure”. 

He says: “We urgently need concrete, long-term proposals in the promised Green Paper on how to tackle the huge issue of funding social care costs.

“While implementing a new approach may need to wait until after Brexit is done and dusted, the Government can’t afford to keep pushing important policy discussions into the long grass.”

Dashboard funding

Following rumours the government was considering scrapping the pension dashboard, in September it revealed it would let the industry take the lead on the project.

But buried in the Budget documents is a promise to allocate £5m in 2019 to 2020 to see the delivery of the pension dashboard, which will include state pensions. The Department for Work and Pensions (DWP) will launch a consultation on the pension dashboard later this year. 

Scott Finnie, product architect at Hymans Robertson, suggests the government should direct its energy and finances towards establishing the data standards necessary for the dashboard concept to flourish.

He says: “By doing so, it will facilitate innovation in the consumer applications available and those innovative applications are the visible face of the dashboard; the data standards are the foundation. 

“By focusing on the data standards, the government will equip and encourage industry to deliver better retirement outcomes for UK consumers.”

The pensions industry has been campaigning for a pensions cold calling ban for some time and, finally, the government revealed it will be implementing legislation to make pensions cold calling illegal in the Autumn. The ban will be enforced by the Information Commissioner’s Office (ICO). 

Once regulations have passed, the Budget documents say it "will work with partners to proactively communicate the message that pensions cold calling will become illegal". Guidance to support industry – in-keeping within the law – will also be published by the ICO.

Claire Trott, head of pensions strategy at St James’s Place, comments: “It’s good to finally see the ban on pensions cold calling come to fruition with the final regulations being laid before Parliament in Autumn this year, and coming into force once approved. 

“This has been a long time coming and although it won’t stop all pension scams, anything that can be done to stop even one person losing their hard-earned pension is worthwhile.”

James Jones-Tinsley, self-invested pensions technical specialist at Barnett Waddingham, adds: "It is also good to see that both the government and the Financial Conduct Authority (FCA) are ‘keeping under review’ a ban on regulated firms purchasing leads obtained from (unregulated) lead generators; particularly given the stories about the ‘factory-gating’ of in-person introducers at British Steel a year ago, and the fallout that ultimately emanated from that.”

He cautions: "But their response does not provide us with a specific date for the implementation of the ban. According to my calendar, we are already well into Autumn 2018 and, given the continued domination of Brexit on parliamentary time, one hopes that the regulations that formed the basis of the consultation will not be laid just before the parliamentary Christmas break.”

Changes to DC rules

One of the Chancellor’s announcements which was leaked ahead of the Budget was about its plans to boost patient capital investing.

The government will unlock £20bn of finance for innovative high-growth firms, and has established a taskforce to address the barriers to defined contribution (DC) pension schemes investing in British businesses, under the patient capital initiative.

The Chancellor’s windfall from better-than-expected borrowing forecasts meant that he did not have to cut back pension tax relief in this Budget.Steve Webb

The FCA will publish a discussion paper by the end of 2018 to explore this, and DWP will consult in 2019 on the function of the pensions charge cap, to ensure that it does not restrict the use of performance fees within default pension schemes, while maintaining member protections.

Aegon’s Mr Cameron notes the government clearly has its eye on the £1trn DC pensions market to fund innovative high-growth firms, but warned “it must be left to trustees and scheme providers to consider, with no mandatory requirement” and “schemes need to ensure they also have sufficient liquidity”.

He continues: “While an element of capital investment may be worth considering in some schemes, we’re pleased to see the government recognise this must be part of a diversified approach.

"The key aim of pension schemes must remain providing an income in retirement to their members, not as a compulsory flow of investments to finance parts of our economy.”

Will Fraser-Allen, deputy managing partner of Albion Capital, believes it is a “landmark move”.

“An appropriate allocation of pension scheme assets will enable young companies that achieve initial scale with early-stage venture capital support, such as VCTs (venture capital trusts), to access the funds they need to develop through their next stages of growth,” he explains. “Pension schemes are a natural source of funding for scale-up businesses.”

Pensions tax relief

Pension tax relief was not the target of cuts in the Budget, despite rumours that it would help fund the government’s plans to provide an extra £20.5bn of funding for the NHS in 2023 to 2024.

Since 2010, there have been six separate cuts to the annual and lifetime allowance.

According to Steve Webb, director of policy at Royal London: “The Chancellor’s windfall from better-than-expected borrowing forecasts meant that he did not have to cut back pension tax relief in this Budget.

“But having described the system as ‘eye-wateringly expensive’ it is likely to be only a matter of time before this Chancellor – or his successor – comes back for more. Respite for pension tax relief is likely to be only temporary.”

Net-pay pensions tax relief anomaly

Finally, those hoping to see the government address the net-pay pensions tax relief anomaly – the issue of low paid workers missing out on tax relief when they are enrolled in a net pay arrangement scheme – will be sorely disappointed.

Adrian Boulding, director of policy at Now Pensions, notes: “It’s extremely disappointing that the Chancellor has chosen to continue to ignore the 1.2 million low earners in ‘net pay’ schemes who are missing out on tax relief on their pension contributions through no fault of their own.

“The government must act urgently to end this injustice, ensuring that all low earners receive tax relief regardless of which type of scheme they are in.”

victoria.ticha@ft.com