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Pensions: trouble ahead?

The pace of change in the pension’s space has been little short of astonishing, and has left thousands of employers struggling to keep their pension policy compliant, and also on the right side of current best practice and governance. Many employers, and indeed many in the pensions industry itself, would like to see a period of no change during the next term of government. This would give all sides a chance to catch up and draw breath. 

Sadly, this does not seem a realistic expectation. The minister of state for pensions, Steve Webb MP, recently gave a speech that suggested that further change may happen very early in the next parliamentary term. This view was given in a strangely apolitical delivery, which could perhaps suggest that some general agreement on future pension policy may have already been agreed between the main political parties.

So what new additions to the landscape can we expect? Of course we already have many areas of change that are not yet complete, including freedom of pensions, auto-enrolment, new governance requirements and pot-follows-member automatic transfers. Yet the minister added two more to this pile of unfinished business:

Tax relief
The minister stated that ‘everyone can see’ that the current system of tax relief does not really work — and that reform was needed here. He stated that this needed to be dealt with ‘once and for all’, rather than all parties awaiting each budget statement with nervous anticipation of a policy change in this area.

And more worrying still…

Auto-enrolment (AE) minimum contribution levels
It’s generally accepted that the AE minimum contribution level of eight per cent of band earnings is not enough to produce a good retirement outcome for many savers. The minister said openly that ‘we can’t leave this until the middle of the next parliament’ before discussion and debate on this key topic begins — the clear implication being that early legislation could be set in motion to further increase the contribution rates for the following parliamentary term (2020). The figure suggested thus far is 12 per cent — a significant step up from the eight per cent level that most savers will shortly achieve. The suggestion is that this contribution hike will not be made in one go, and will instead probably follow the gradual increases to minimum contribution levels that has been used so successfully during the AE process to date.

Yet such an increase will ring alarm bells with employers. How much extra will employers themselves be required to pay here, and will this prove to be yet another admin and communication problem on the horizon? We shall have to wait and see, and presumably the manifestos that will shortly be published will provide some further light on these key topics.

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