13th March will see Chancellor of the Exchequer Philip Hammond rise for his first Spring Statement (mini-budget). He has already stated that this will not be a statement for major tax or fiscal changes stating that “there will be no red box, no official document, no spending increases, no tax changes.” This allows those in the pensions industry to relax slightly. While the Government have big pensions issues to deal with, not least the implementation of the pensions dashboard, increases to auto-enrolment minimum contributions and the perennial headache of pensions tax relief it would seem that this statement will not be the time for major change. There were rumours last year that the Chancellor was planning on introducing some age related tax breaks to incentivise younger savers by providing a greater reward for their pension contribution. A perception of intergenerational unfairness between the older and younger generations persists with David Willets announcing on 5th March 2018 a proposal to tax older people more to cover the costs of future care needs. However, a weak Conservative government may need to tread carefully when treating older (more likely Conservative voters) more harshly.
As usual be wary of those that call for high earners to plough money for fear of losing the higher rate top up. Trying to second guess the Government’s pensions tax policy is a fool’s game. Sound financial planning would result in those most able to saving as much as they can to take advantage of the tax breaks. However, with the pressures of Brexit and a precarious majority in Parliament the time for major changes may not be now.
While the spring statement is expected to be quiet for pension savers, trustees and sponsors there is some double parking as far as pension watchers are concerned. The DWP has promised to publish its keenly anticipated White Paper on Defined Benefit pensions on the same day. The Green Paper from late-2016 covered a wide range of topics including facilitating consolidation of DB schemes, the powers of the Pensions Regulator, valuing funding liabilities and a statutory override to RPI amongst other things. The Carillion episode has accelerated the publication of the paper and I expect it to be dominated by two main areas.
The first will be the powers of the Pensions Regulator. TPR has faced further criticism during the Work and Pensions Select Committee sessions examining its actions and those of the Trustees. Much of the perceived weakness in the Regulatory system concerns the ability of the Regulator to intervene when companies pay large dividends in lieu of deficit recovery contributions. The Government in their election manifesto, and reiterated since, are keen to take steps to make it harder for companies to pay dividends and have pension funding deficits. This could force the Pensions regulator into a collision course with many employers and also give a lot of strength to Trustees when negotiating recovery plans but could make agreeing technical provisions between trustees and employers incredibly difficult. This line may be too difficult to walk and instead a review of the clearance and moral hazard powers could be reviewed for retrospective powers for the Regulator to criticise actions taken by company directors and impose large fines (Frank Field’s nuclear option). It seems unthinkable that the White Paper will be silent on this and so sponsors and trustees alike should be paying very close attention to what is released.
The second area may be less exciting in the short term but there remains a strong wind behind the desire for small DB schemes to be consolidated in some way. Be that full consolidation (unlikely for a long list of legal and practical concerns) or solutions to allow economies of scale with investment and governance to be introduced. It is highly likely this will be kicked to the Regulator to corral the industry to come up with the practical solutions with compulsory solutions very unlikely. Small schemes remain a concern for the regulator as they consistently have poorer outcomes and are unable to access the savings enjoyed by larger schemes. Many of these are legacy arrangements with Trustees and sponsors who may not be as fully engaged as they should be and so work to improve them should be encouraged.