Spring Statement washout for pensions; govt to respond on RPI in April

The government has said it will respond to the Lords Committee’s recommendation to use one single indexation measure to fix an error in the retail price index (RPI) in April, a Spring Statement that offered little news for pensions has revealed.

Publishing a written ministerial statement on the Spring Statement today, 13 March, the government said it would be considering the Committee’s report “and the complex issues it raises” and will respond in April.

The announcement marked an extremely underwhelming Spring Statement for pensions, in which there little to no detail on any changes moving forward.

In January, the Committee published a report which suggested that the current position of the UK Statistics Authority (UKSA), which uses RPI as a legacy measure, is “untenable”, particularly when used to uprate private sector pensions.

The Committee recommended to switch to using the consumer price index (CPI) in the meantime, to prevent “shopping in the interim”. It is thought the move would negatively affect private sector pension deficits.

Elsewhere in the Spring Statement, Chancellor Philip Hammond gave little for the pensions industry to think about, as uncertainty around Brexit overshadowed the event, but did his best to paint a positive picture of the UK's finances.

Aegon pensions director, Steve Cameron, commented: “While we weren’t expecting any ‘major’ policy announcements in a Spring Statement overshadowed by Brexit, it’s disappointing there was so little indication of what might be on the government’s post-Brexit priority list.

“The Chancellor’s commitment to focus on raising wages for the low paid is welcome. One immediate way of doing so would be to instruct HMRC to ensure non-taxpayers in ‘net pay’ schemes receive the 20 per cent tax relief on their pension contributions to which they are entitled.”

“Solving this issue would mean someone earning £11,500 and paying the automatic enrolment minimum contribution from April 2019 would be £53 a year better off.”

Hammond also revealed an improvement in public finances, announcing that he expects public borrowing to be £5-6bn a year lower than previously forecast.

Royal London director of policy, Steve Webb, believes the Chancellor now has “no excuse” to deliver an Autumn Budget raid on pension tax relief, previously eyed up by Hammond.

“Too often, governments have raided pension tax relief for extra revenue to meet a short term spending crisis. Now that the public finances are improving faster than expected, there is no justification for further ‘salami slicing’ of limits on tax relief,” he said.

“Pensions should be a long-term business, not subject to annual tweaking by cash-strapped Chancellors. An improving fiscal picture means the Chancellor should refrain from any further short-term cuts.”

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