‘Sparse’ Spring Statement ‘disappoints’ on pensions

Written by Theo Andrew

Chancellor Philip Hammond’s inaugural Spring Statement held little of note for pensions, but wider economic announcements will have industry ramifications, according to the industry.

Hammond's statement, delivered today, 13 March 2018, said that UK inflation will fall to 2 per cent by the end of 2018 and real wage growth will be positive, which could have a knock-on effect for future triple-lock increases, according to, Aegon pensions director, Steven Cameron.

As expected little was offered in the way of policy, with the industry left feeling "disappointed" with the lack of clarification on long-term key areas.

Cameron said: “The updated forecasts of lower price inflation and a return to real earnings growth will have knock-on implications for future triple lock increases to the state pension.

“There could be implications for final salary pension scheme funding which is impacted positively by lower price inflation but negatively by higher earnings growth for members who are still building up benefits.”

Despite this, Cameron was disappointed not to hear more on the government's long-term priorities in key areas, for example, the exclusion of the self-employed in auto-enrolment.

Cameron added: “We’d been told to expect no new policy announcements in the Chancellor’s first ‘Spring Statement’ and that’s precisely what we got.”

“With the Chancellor saying the Conservatives are the champions for small businesses, we need new policies to stop self-employed becoming second class citizens in retirement.”

In addition, growth in real wages will alleviate the hit people feel when auto-enrolment contributions increase in April.

Furthermore, GDP growth for 2017 was 1.7 per cent, beating the 1.5 per cent forecast in the Autumn Budget, which will be “welcome news by the trustees of defined benefit schemes”, Lincoln Pensions CEO Darren Redmayne declared.

Redmayne believes that while DB trustees will welcome the good economic news, as it bodes well for their covenant, but warns of recent volatility in the equity market and how it can affect the funding levels of pension schemes quickly.

He said: “However, the recent return of equity market volatility has shown how the funding levels of pension schemes can change quickly, particularly for those schemes with higher risk investment strategies.

“This should act as a wake-up call for trustees to ensure that their sponsor really can support the level of investment risk in their scheme. We recommend trustees consider scenario testing, such as if a significant and prolonged market downturn were to happen in the future.”

The industry will now focus its intentions on the raft of previous announcements, such as an increase to the pension lifetime allowance, increases in auto-enrolment minimum contributions, changes to tax bands, changes to income tax rates for those in Scotland, and cut in the tax free dividend allowance.

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