Autumn Budget leaves Pensions and Investments Intact

Published by Lee Hayward on 28 October 2021

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The Chancellor’s Autumn budget today had a golden glow to it with some significant spending promises.

The building back of the UK economy post-pandemic might have brought with it a rash of legislative changes to pensions and investments, but not so!

Arguably of prime concern – pensions tax relief, left untouched.

Instead, the key announcements focused on Workplace pension charge caps, proposed increases to the normal minimum pension age, and government top-up contributions to low earners in net pay pension arrangements.

Workplace pension charge cap

The government will consult on further changes to the regulatory charge cap for defined contribution pension schemes used for Workplace pensions/auto enrolment. The charge cap is currently equivalent to 0.75% per year of funds under management on default funds. These are the funds that contributions are paid into following auto-enrolment to the scheme, and where many investors remain unless they choose to invest in alternative funds offered by the scheme provider. The aim is to unlock institutional investment to support some of the UK’s most innovative businesses by allowing the charge cap to accommodate ‘well designed performance fees’. It should also result in members being able to potentially benefit from higher return investments.

Normal minimum pension age

With people living longer and spending longer in retirement, it is no real surprise that there are increases planned to both the State Pension age and the normal minimum pension age for private pensions. The government will legislate in Finance Bill 2021/22 to increase the earliest age at which most pension savers can access their pensions (the normal minimum pension age) from 55 to 57. This increase will take effect from 6 April 2028. It’s been separately reported that the Finance Bill 2021/22 will be published on 4 November 2021, so we can expect an update on the final proposals then.

Low earners in occupational pension schemes

This ‘net-pay’ issue reared its head 5 years ago, and it’s only right to point out that the government’s plan to address it won’t be implemented until April 2025! An anomaly currently exists in the way that tax relief is given on personal pension contributions, between net pay arrangements (used by occupational pension schemes), and relief at source schemes (used by personal pensions).

Under net pay arrangements, employers deduct gross contributions from an employee’s gross pay before calculating income tax using Pay As You Earn (PAYE). In this way the employee should get tax relief immediately at their highest marginal rate. However, if an employee doesn’t earn enough to pay income tax, they won’t get any tax relief.

The government intends to introduce a system to make top-up payments to low earners in net pay arrangements in respect of personal contributions made from 2024/25 onwards. The Autumn Budget and Spending Review 2021 estimates that around 1.2 million individuals could benefit from the top-up by an average of £53 per year.

To speak to a Financial Planner from Kreston Reeves Financial Planning, part of the Craven Street Wealth group, about the budget, your own retirement provisions or workplace pension scheme please contact us on +44 (0)330 124 1399 or complete our online enquiry form.

The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice.

You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.

Kreston Reeves Financial Planning Limited, Independent Financial Advisers. Authorised and regulated by the Financial Conduct Authority.

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