Pensions and Lifetime Savings Association (PLSA) Director of Policy and Advocacy Nigel Peaple comments on measures in today’s Budget impacting pensions.
Pensions tax administration anomaly (net pay/RAS)
“The Pensions and Lifetime Savings Association (PLSA) welcomes the plan outlined in today’s Budget to address the pensions tax administration anomaly that results in approximately 1.2 million lower earners – mostly women – in certain (Net Pay) schemes missing out on pensions tax relief. On average, low earners are missing out on over £50 each per year. The PLSA has been calling on Government to fix this problem for some years. Indeed, it is something we highlighted in our submission to the Treasury in advance of the Budget. While the solution proposed by the Government is not the one preferred by the pensions industry – the P800 solution – which would have resulted in fully automatic tax top-ups, the Treasury’s approach will work provided individuals make a one-off claim for the payment. We look forward to working with Government to help publicise how people on low earnings can make a claim when the measures come into force.”
Pensions tax relief
“It is very positive that the Government has listened to the PLSA and the wider pensions industry in recognising that more, not less saving is needed so that more people have a better income in retirement, and decided not to make any further changes to the current system of pensions taxation. In our submission to the Budget, we made clear that mooted changes to pensions tax relief would not have a materially positive impact on pension adequacy for the vast majority of savers, would result in substantially higher tax bills for three to four million savers, and would increase cost and complexity for pension providers.”
Consultation on the pensions charge cap – performance fees
“The PLSA has long been a supporter of the current charge cap, which protects savers against high fees in default funds, and believe it is set at the correct level. In practice most pensions schemes operate well within the 0.75% cap, averaging 0.48% across all members. Measures to amend the charge cap, particularly related to the smoothing of performance fees, might make it a little easier for some schemes to invest in illiquid assets. However, we do not believe that alterations will necessarily lead to a material change in investment in illiquid assets. The Government has already introduced some changes to the charge cap which came into force earlier this month. We would rather the Government allowed some time to see what effect these recent changes have before consulting on further amendments. The pensions industry is very open to investing in illiquid assets, such as infrastructure, provided they match the needs of pension scheme members and have the right investment characteristics, but this is a complex area, and we do not think the current charge cap is blocking such investments.”
