Budget  

Treasury's pension costings at odds with other projections

Treasury's pension costings at odds with other projections
 Anna Shvets via Pexels

The Treasury's forecasts for the cost of the net pay policy change and state pension cost savings have surprised industry specialists.

According to the Budget document: Autumn Budget and Spending Review 2021 Policy Costings, the government expects a net loss to the Exchequer of £10m in 2025-26 and just £5m in 2026-27 as a result of allowing low-earning pension savers to top-up their net pay arrangements.

The payments will aid those currently not receiving tax relief on their pensions, although the system will not be introduced for another three years - meaning claims cannot be made until 2025-26 at the earliest.

The government estimated 1.2m individuals will potentially benefit from the top ups, by an average of £53 a year - equating to almost £64m in total. 

But costing documents showed the government estimates it will pay out just £10m in 2025-26, suggesting it believes take-up will be relatively low.

Jon Greer, head of retirement policy at Quilter, said: “The forecast costs to solve the pension net pay issue appear, on the face of it, relatively low.

"One can only assume the Treasury has factored in a degree of apathy and expects only around one in four people to claim the pension tax relief top-up they are owed.”

The government has also predicted higher-than-anticipated cost savings as a result of its tinkering with the triple lock on state pension increases for 2022-23.

The anticipated £5.4bn saving by changing to a double-lock for the next tax year (2022-23) is higher than some industry forecasts. Last week Quilter said the previously announced changes would save the government £4.7bn next year.

Following the publication of the policy costings yesterday (October 27), Greer said he was "unclear" how the government has forecast the state pension cost savings, but said there was "possibly more to it" than has been published by the Treasury.

The document also appears to have outlined savings for subsequent tax years, as displayed in the table below. However, the table - included on page 44 of the policy costings document - is accompanied by an assertion that the double-lock would remain in place for 2022-23 only. 

Greer added: “It’s important to remember the government introduced new legislation last year to ensure state pensions were uprated by 2.5 per cent in recognition of its manifesto promise at a time when inflation was a mere 0.5 per cent and earnings were falling due to the furlough scheme.

"Now it’s gone the other way it feels logical, but also undermines the triple lock as a policy given it can be so easily watered down and at a time when energy costs are rising significantly.” 

Anticipated changes

Meanwhile, a much-desired change to the lifetime allowance was absent from the Chancellor's Budget yesterday (October 27), to the chagrin of many commentators from the pensions industry.