The government has announced a number of pension measures in today's Queens Speech but there has been a conspicuous absence of some others the industry would have liked to have seen.
The Pensions Bill announced today (October 14) included long-awaited rules around pension dashboards, collective defined contribution schemes and new powers for The Pensions Regulator.
It will be presented in parliament in the next few days as MPs will debate the new regulations. There is no guarantee it will make it into law however, as the government has no working majority and will rely on other parties to back it.
Rachael Griffin, tax and financial planning expert at Quilter, said many of the policies outlined by the government were not new but had been put on hold due to the Brexit debacle.
She said: “Meanwhile some subjects such as the impact on pension allowances and inheritance tax were notably absent from the speech and we’re none the wiser as to what the current government has in mind with these topics.”
Ms Griffin noted there remained important issues, such as discrepancies around net pay schemes, that were noticeably absent in the Queen’s Speech.
She said: “This tax flaw means nearly two million low earners are being deprived of free pension cash. A new government should put fixing this quirk in this system high on their agenda.”
Steven Cameron, pensions director at Aegon, agreed with this view, and said he hoped for some clarity on the topic in the chancellor's planned Budget on November 6.
“The lowest earners deserve every help they can get to save for their retirement,” he said.
The issue affects members of pension schemes who don't pay income tax and are granted basic rate tax relief of 20 per cent on pension contributions up to £2,880 a year.
In practice this means HMRC will top up a net contribution of £2,880 to a gross £3,600.
But this tax relief is only available where the pension scheme operates on a relief-at-source basis, which is only accessible through a handful of companies.
It is not available for schemes that operate a net pay arrangement, which the majority of pension funds in the market do.
There were also omissions at the other end of the earnings spectrum where, Mr Cameron said, “it’s important to ensure tax rules and retirement savings incentives are fit for the future and work together without unintended adverse consequences."
He added: “Issues with highly paid health professionals in the NHS scheme have shone a light on the sheer complexity of rules around pension lifetime and annual allowances.
“These are penalising an increasing number of people saving for retirement, encouraging some to refuse extra work or to retire early.”
Another area where experts were expecting some new measures was auto-enrolment, particularly the minimum contribution threshold and the treatment of the self-employed.
Matthew Arends, head of UK retirement policy at Aon, said: “It is reassuring to have progress on these three key areas, but some other significant pensions areas were not mentioned.
“For example, there is no mention of automatic enrolment, so employers will need to focus on ensuring their employees are getting the most out of pensions in the absence of further rises in the minimum contribution rates.
“And the self-employed continue to remain outside of automatic enrolment.”
For Alistair Russell-Smith, head of corporate consulting at Hymans Robertson, it was disappointing that legislation for defined benefit consolidation had been left off parliament’s legislative agenda.
He said: “It’s clear that commercial consolidator transactions could get more cash into schemes, improving funding levels and member security and reducing the burden on the Pension Protection Fund.
“However, in the continuing absence of an authorisation regime for providers, it’s likely that some transactions will continue to stall, slowing the growth of this market.”
DB consolidation has been on the government's agenda, with the department for Work and Pensions publishing a consultation paper in December, which closed in February.
The consultation followed a DB white paper published in March 2018, in which the government revealed plans to promote consolidation in the DB pension market, in which two thirds of the 5,600 schemes had funding shortfalls at the time.
Two consolidators – the Pension Superfund and Clara Pensions – have already announced their intentions of working in this market and are currently in negotiations with target schemes.
maria.espadinha@ft.com
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