On 29 October 2018, Phillip Hammond presented the Autumn 2018 Budget to the House of Commons. For the self-employed, the Budget report confirms that the DWP will this winter "publish a paper setting out the government's approach to increasing pension participation and savings persistency". For pension schemes, there are a number of changes to note.
All pension schemes
- Cold calling – To coincide with the Budget, the government published its response to the July 2018 consultation on draft regulations introducing a ban on cold calling in relation to pensions. The response confirms that government intends to lay revised regulations before Parliament this autumn, with a view to the ban on cold calling coming into force as soon as is possible.
- Lifetime and annual allowances – As expected, the lifetime allowance will increase in line with CPI to £1,055,000 for the tax year 2019/20. The annual allowance will not change.
- Pension dashboards – Later this year, the DWP will consult on "the detailed design for Pension Dashboards, and on how an industry-led approach could harness innovation while protecting consumers". Although an industry-led approach still seems to be preferred, the government will provide extra funding in 2019/20 to support the development of dashboards which should include State Pension details.
- Patient capital – A number of initiatives will be taken to follow up on the commitment made, in the Autumn Budget 2017, to support long-term investment in innovative firms by "giving pension funds confidence that they can invest in assets supporting innovative firms as part of a diverse portfolio". The Pensions Regulator's guidance documents on DB scheme investment and on DC scheme investment already contain sections relating to patient capital investment. This year's Budget document announces, for example, that the largest DC pension providers will work with the British Business Bank "to explore options for pooled investment in patient capital", and that the FCA will explore "how effectively the UK's existing fund regime enables investment in patient capital" and "updating the permitted links framework to allow unit-linked pension funds to invest in an appropriate range of patient capital assets". The DWP will also "consult in 2019 on the function of the [DC] pensions charge cap to ensure that it does not unduly restrict the use of performance fees within default pension schemes, whilst maintaining member protections".
- Recovery on insolvency – the Finance Bill 2019/20 will include provisions to ensure that, from April 2020, HMRC is a preferential creditor for taxes that a business collects from employees or customers, but does not pay across to HMRC, before becoming insolvent. This will include PAYE, employee NICs and VAT. This paper explains the change and expected impact in more detail. The aim of this measure is to increase the prospects of these sums being available for their intended purpose: funding public services. The significance for pension schemes is that it will reduce the pool of assets available to unsecured creditors, including pension schemes. HMRC will remain an unsecured creditor (competing with the PPF or trustees) for other unpaid tax liabilities. However, it is going to be given new powers to make directors and other people involved in tax avoidance, tax evasion or "phoenixism" "jointly and severally liable for company tax liabilities, where there is a risk that the company may deliberately enter insolvency". If it exercises these powers, this could help to reduce the size of its claim in the event of insolvency.
- Income tax - The personal allowance and higher rate threshold will increase to £12,500 and £50,000 respectively for the tax years 2019/20 and 2020/21. After that the personal allowance will increase by CPI.
- National living wage and national minimum wage – the NLW and NMW will both increase from April 2019.
Public service pension schemes
- Costs cap - The provisional valuation results for the unfunded public service pension schemes suggest that changes will need to be made from 2019/20 to make pension benefits more generous. (Nothing is said about the LGPS, which is a funded scheme.)
- Employer contributions - The discount rate for calculating employer contributions to unfunded public service pension schemes will reduce to 2.4% plus CPI, with an expectation of additional employer costs over the long-term.
Osborne Clarke comment
The Autumn Budget has brought welcome confirmation that a ban on cold calling should soon be in place. At a time of great change, it is also reassuring to find that the government has decided against immediate change to pensions tax. Trustees and employers should note the changes and consider updating websites and communications where relevant.