“Pension schemes will not thank Mr Hunt for his announcements today. Their responsibility must be to their members, not changing with the winds of government policy or party. But with other changes on the horizon and regulatory pressure coming from all angles, there are some tough months ahead.”  Matt Tickle – Barnett Waddingham

It is easy for consultants to back a horse at 1/33 and hard to back Jeremy Hunt when he’s riding a “rag” with those odds against.

Short of legislating for a mandatory allocation to UK equities by UK pension funds, Hunt’s options for making pension schemes work for Britain are limited. The DWP’s press release issued following the 2024 budget  is rather greater than the sum of its parts.

A summary of key DWP measures set out in the budget and more information about those measures can be found below: 

• Spring Budget – Spring Budget 2024 – GOV.UK (www.gov.uk)
• Press release – Chancellor delivers lower taxes, more investment and better public services in ‘Budget for Long Term Growth’ – GOV.UK (www.gov.uk)
• Spring Budget 2024 speech – Spring Budget 2024 speech – GOV.UK (www.gov.uk)
• Press release – Chancellor backs British business with pension fund reforms – GOV.UK (www.gov.uk)

Summary of DWP measures  

• We are enabling individuals to move towards having one workplace pension pot for life – Lifetime Provider, even when they move between employers. We have reached out for feedback and will undertake further analysis and research in advance of responding to the Call for Evidence. 
• The Chancellor made an announcement on disclosure elements of Value for Money (VfM), ensuring savers have confidence that their pension delivers the best possible value and long-term retirement outcomes and help schemes shift their focus from cost to a more considered and holistic assessment of value for money.
• The government is taking steps to strengthen capital markets, boost savings, increase pension fund transparency and facilitate investment in UK companies. Building on previous announcements to improve outcomes for savers and unlock capital, government confirms new transparency requirements for pension schemes.
• With regards to the Mansion House Compact, the government is working with the Association of British Insurers, to finalise a framework for monitoring progress on the Mansion House Compact ahead of its first anniversary.

Or as the FT put it

The City has a genuine champion in 11 Downing Street, and it is depressing the Chancellor has so little room to manoeuvre that he is reduced to announcing and amplifying measures that will make little difference and that smack of parochialism at odds with the broader vision of London as a global financial centre.

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The radical measure that could make a difference

a young man in suit giving a wad of pound sterling bills to the observer

The Chancellor dangled a vision of a taxation system without NI.  Such a system would radically change the way that pensions could be taxed. Without the obvious arbitrage of swapping out employee contributions for employer contributions using salary sacrifice/exchange ,  a new fairer  system of pension taxation could be introduced.

We are now at 8% employee contributions, down from 12% but still a long way from zero, while employer contributions are as high as ever. But if National Insurance was to be replaced with income tax , then the door would be open to a single rate of relief that could not be arbitraged.

National insurance was never meant to be a tax but it’s turned into one, and a most unfair one. It is a tax on workers but not on pensioners and it pays into the exchequer as a tax on work. A tax that is so easy to circumvent with salary sacrifice (where a benefit is not paid as income), is a failing tax.

We have seen an increasingly tough stance from HMRC on what they call a “raid on the public purse; public sector employers have been warned off pension salary sacrifice – even on AVCs.  While salary sacrifice cannot be done away with, but it can be made redundant.

Salary sacrifice is less effective than it was, but it is still the best tax buster that pensions has, enjoy it while you can!