The Budget | The Chancellor springs Down Under

Australian parallels made in the 2024 Spring Budget

Recent history and budgets tell us pension updates don’t tend to be this frequent, however Jeremy Hunt is continuing his re-design of the UK pension landscape to deliver value for members and boost the UK economy.

Starting on the latter, the Chancellor confirmed DC pension schemes will be required to disclose their UK and international investments, indicating further steps may be necessary to promote investments across the UK.  The announcement is interesting for a couple of reasons, firstly, some pension providers have reduced their exposure to UK markets in recent years and may be encouraged to dial it back up, and secondarily, a further connection can be made to the Australian system, (which Jeremy Hunt seems to be an admirer of), where investments are largely made into the economy and illiquids. He later added that greater transparency of investments will help determine whether the UK is meeting best practice steps compared to international comparisons, when investing domestically.

Surprisingly and following the industry’s comments regarding the ‘Pot for Life’ initiative after the Autumn Statement (another Australian reference), The Chancellor announced further consultations will be held to shift towards a ‘one plan’ only arrangement led by the individual and not the employer.  The pension industry is concerned that the good work auto-enrolment has done for retirement savers may be undone, and any change will need to be thoroughly thought through before any next steps are taken. However, some key figures in the pension world including Steve Webb, former Pensions Minister who played a key role in the success of auto-enrolment, believe this is the Government’s way of cooling interest in the initiative. Only time will tell, but there are certainly mixed views within the industry, given the recognition to develop areas such as ‘small pot’ framework and the pension dashboard which would negate the need for a change in system.

The pension industry was disappointed to hear that no updates were made in respect of the auto-enrolment minimum contributions made by both employer and employee or any other changes. It is still widely recognised that individuals are not saving enough for retirement and will have less than a moderate income to draw upon. The existing minimums add up to an amount of 8% (on a qualifying earnings basis). Pension providers within the UK, including Aviva have urged the Government to increase minimum contributions to total 12.5% by 2028 in order for individuals to retire comfortably. Whilst the Government’s Pension Act 2023 included auto-enrolment age and earnings changes, these are yet to be implemented, and do not include any changes to contribution minimums.

A final point to note is the Chancellor reiterated that The Pension Regulator and Financial Conduct Authority will be given more powers to support the value for money framework. This is so the value of a pension can be judged on its returns, rather than just its charging structure. The latest powers TPR was given in 2022 supported its regulatory framework to efficiently gather evidence and respond to events that affect pension schemes.

Only time will tell what impact Jeremy Hunt’s announcements may have on the industry, however with no timescales confirmed, fears will grow that any new initiatives and changes will not happen in the short term. With a change in government a real possibility before this year is out, what a new Chancellor might make of these moves throws further speculation into the mix. Watch this space.

This article is intended as a summary of the potential impact of the Spring Budget on company pension schemes. Further details of the Budget can be found on HM Treasury’s website using the following link:

https://www.gov.uk/government/topical-events/spring-budget-2024