The Government has announced in the Pre-Budget Report (PBR) 2009 that it is adjusting some of the details of how the pension reforms originally proposed for 2012 will be implemented, including a delay in introduction.

The reason for these adjustments, as stated in the PBR, reflects 'the changed economic and fiscal circumstances and the cost of this reform to business as the economy recovers', and the changes to the implementation of private pension reform includes to 'the timetable for employers joining the reform'.

According to Standard Life, one key change announced by the Chancellor in the PBR is that smaller employers will not have to automatically enrol their employees until later, which means that these firms will now take on their duties after October 2015 instead of before. The other key amendment is a one-year delay for employers in reaching the full contribution level of eight per cent, with at least three per cent from the sponsoring employer, which will now be reached in October 2017 rather than the previous year.

"This delay in having to automatically enrol employees in a pension scheme and pay contributions to their pension pots will come as welcome relief for small business who are likely to be still recovering from the effects of the recession in 2012," according to Andrew Tully, senior pensions technical manager. "However, as it will now be 2017 before the full eight per cent payment kicks in, savers will not build up significant savings until after 2030. While this may be a short-term gain for the Government through lower tax relief, it will likely lead to long-term pain as higher levels of means-tested benefits will need to be paid, as people will not have as much retirement savings to see them through their later years."

However, Watson Wyatt has pointed out that the PBR documents do not make it clear whether the adjustment is a case of putting numbers on the delay already announced or whether there will now be a further delay.

Paul Macro, a senior consultant at Watson Wyatt, said that either way, this is a short-term approach: "This is a bit like using your credit card to pay off a loan. Most tax relief is simply tax deferral, so much of the gain to the public finances comes from bringing tax revenues forward rather than raising new money, and future benefit spending will also be higher if people delay starting to save. The fiscal crisis isn't going to stop us getting old, so how does it remove the need to save for retirement?"

Tim Jones, chief executive of the Personal Accounts Delivery Authority (PADA), maintained that the Government remains committed to the pension reform programme. "As the Chancellor said in his speech, the reforms are going ahead, and the employer duties will be staged in from October 2012 as planned." Jones added that there will be some adjustments to how the pension reform duties will be implemented, and more details of these will be clarified early next year. He confirmed that the Personal Accounts scheme will launch in low volumes in 2011 and will be ready for the onset of employer duties from October 2012.

"Our work is progressing well - the procurement for scheme administration services is proceeding well, recruitment for the Chair of the trustee corporation is underway, we have made significant progress on finalising our recommendations on investment strategy and the trustee corporation will be in place from summer 2010."

Jones concluded that PADA remains "on track" to implement and deliver a pension scheme that will help millions of people save for retirement.

Partner in the pensions team at law firm Mills & Reeve LLP, Harry Scott, added that the PBR appears bias towards defined benefit (DB) schemes: "The announcements in the PBR relating to pensions suggest that there could be a lack of fairness between defined benefit pension schemes and money purchase arrangements. I am concerned that the Chancellor intends to treat employer contributions to occupational money purchase schemes and personal pensions as part of taxable income for the purposes of restricting tax relief to the basic rate, but that he will not take the same approach in relation to defined benefit schemes.

"I accept that to do the latter means valuing each year's accrual in relation to each member, which is not easily done and therefore a statutory approximation would have to be introduced, as has been done in relation to the A-Day pensions tax regime. But to do what is proposed means a significantly different tax treatment for defined benefit scheme members and as public sector schemes are mostly DB it looks like the government is protecting its own people."

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