Chancellor George Osborne has once again delivered a raft of changes designed to subtly – or not so subtly – shake-up the pensions system.
For a Budget that seemed somewhat quiet on the pensions front for the first 50 minutes, Osborne still managed to slip in the words ‘Lifetime ISA’ (a potentially huge threat to the workplace pension), hint at axing salary sacrifice benefits, increase public sector employer contributions and make some radical changes to pensions guidance.
Not so quiet after all.
Here we provide a summary of all the changes – the subtle and the unsubtle – to impact the pensions industry:
The biggest announcement came in the form of a brand new "shiny" product, also known as a 'Lifetime ISA'.
Osborne announced that from April 2017, anyone under 40 will be able to open a Lifetime ISA, whereby for every £4,000 saved the government will add £1,000 every year until the age of 50.
The whole concept came about as the Chancellor said he wants to help the next generation build up assets and save, as many do not have pensions because they are "too complex”.
Osborne claimed he ‘knows people like ISAs’, because they are ‘simple’. Thus, the Chancellor has increased the annual allowance from just over £15,000 to £20,000, as well as introducing the Lifetime ISA for those who have not “had a good deal from the pensions system”.
Those who open a Lifetime ISA will be able to access their money at any time for a small charge and the government will also consult with the industry on whether people can return their money to the account to reclaim the bonus, like the American 401K.
Many industry figures have since claimed this was Osborne’s way of implementing a ‘Pensions ISA’ via “the back door” by creating a ‘voluntary’ one instead.
Public sector employer pension contributions
The government has also revealed unfunded public sector employer pension contributions will increase from 2019 by an estimated £2bn per annum.
Osborne said the government wants to keep public sector pensions “sustainable”, adding that reforms made in the last parliament will save over £400bn in the long-term.
But he also said he has “ensured” this will not affect anyone’s pension, and will be affordable within spending plans that are benefitting from the fiscal windfall of lower inflation.
Salary sacrifice restrictions
According to Budget documents, the government is also considering limiting the range of benefits available as part of salary sacrifice schemes.
During his speech, Osborne hinted at cracking down on £12bn in tax avoidance from “disguised remuneration schemes”, which industry figures speculated - and documents have since confirmed - would include salary sacrifice schemes.
The government has stated however, its intention “is that pension saving, childcare, and health-related benefits such as Cycle to Work should continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements.”
New guidance body is launched
Another announcement to have slipped into the Budget documents was the news that the government will create a ‘new pensions guidance body’, which will replace the Money Advice Service and merge the functions of The Pensions Advisory Service and Pension Wise, to ensure “consumers can access the help they need to make effective financial decisions”.
The restructured delivery model will include a new pensions guidance body, “to make sure that consumers can get all their pensions questions answered in one place, at all stages of their lives”.
The new body will be set up to offer guidance through multiple channels, such as phone, face to face and online. According to the government, there will be clear signposting and ‘warm handoffs’ for further pensions guidance and for a seamless transfer between different organisations to deal with non-pensions related queries, such as debt advice and benefits.
According to the government, the earliest date the new pensions guidance and money guidance bodies will launch is April 2018.
The best of the rest
Other announcements included the government’s pledge to ensure the industry designs, funds and launches a pensions dashboard by 2019. The government said “this will mean an individual can view all their retirement savings in one place”.
Additionally, the government is also set to consult on introducing a Pension Advice Allowance, permitting people before the age of 55 to withdraw up to £500 tax free from their defined contribution pension to redeem against the cost of financial advice. This means a basic rate taxpayer could save £100 on the cost of financial advice.
Furthermore, it said it will consult on introducing a single clear definition of financial advice to remove regulatory uncertainty and ensure that firms can offer consumers the help they need.