The October 2021 Budget: Pension Changes



28 October 2021

Although company-sponsored pension arrangements barely received a mention in the Chancellor’s Budget speech yesterday, there are nevertheless two areas of potential change that employers should note for future reference.

The supporting documents to the Budget speech include the following:

Pension Scheme Charges Cap

The Budget documents state:

“Responding to calls from industry, the government will also consult on further changes to
the regulatory charge cap for defined contribution pension schemes. This will consider options
to amend the scope so that the cap can better accommodate well-designed performance
fees to ensure savers can benefit from higher return investments, while unlocking institutional
investment to support some of the UK’s most innovative businesses. The government will
continue wider policy work to understand and remove various barriers to illiquid investment”

As set out in this consultation document from earlier this year, the charge cap is currently 0.75%.  Many pension schemes already have charges far lower than this cap, so the new consultation should not pose too many immediate concerns to employers, and in any case any changes to the cap will doubtless take time to announce and implement.

The charge cap consultation will however allow government to change some of the details about how the cap is calculated, which may well allow a wider range of pension scheme investments in the future.  This is to be welcomed.

Pension tax-relief for low earners 

Auto-Enrolment requirements became a reality for employers and employees some years ago.  And ever since it has been widely acknowledged that the tax relief given to some low-paid savers often differs between scheme types.

A fix to this issue is long overdue, and in the Budget documents yesterday this was addressed.

“In 2025-26 the government will introduce a system to make top-up payments
in respect of contributions made in 2024-25 onwards directly to low-earning individuals
saving in a pension scheme using a Net Pay Arrangement. These top-ups will help to better
align outcomes with equivalent savers saving into pension schemes using Relief at Source. An estimated 1.2 million individuals could benefit by an average of £53 a year”

It is however concerning is that this corrective measure is still some years away from happening, and that savers may lose out in the meantime.  Yet it is encouraging that the problem is finally being addressed to bring some more uniformity to tax relief for low paid pension savers.

For more information on any of the above topics, please speak to your usual Howden Consultant in the first instance, or visit our website for other contact options.  

Published 28/10/21

Steve Herbert

Steve Herbert

Steve is Head of Benefits Strategy, Howden Employee Benefits & Wellbeing, and is an award-winning thought leader on Pensions, Employee Benefits, and Human Resources issues. He is occasionally accused of making Employee Benefits interesting.

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