Is AAF fit for today? What should Trustees be considering?
Is AAF fit for today? What should Trustees be considering? AAF 01/20 reports began appearing
Budgets, Pensions and Communications
Explore the implications for employees, trustees and pension scheme governance, plus why effective communication will be critical in the years ahead.
The new budget has been announced, and given the headlines spread across the media for the last six weeks, from a pensions perspective it feels like a case of “not great, but could be worse”. The non-application of the old favourite (somewhat “blood-chilling”) rumours about reducing the 25% tax-free lump sum, possibly combined with a reduction to higher rate tax relief, means plenty of people will be counting their blessings.
The much-trailed £2,000 cap on salary sacrifice contributions is an interesting introduction. On the face of it, a large number of employees won’t be impacted – a significant proportion of employees don’t have access to salary sacrifice or their contributions are within the £2,000 limit.
We would expect employers to introduce work-arounds for high earners, possibly through changed benefit packages. For those in the mid-cohort paying more than £2,000, whilst there may be ways in which systems could be updated to carve out reliefs, it seems more likely that it won’t be worth the additional time and complexity for employers and for many it might be simpler to remove the entire system.
Presumably this is linked to the decision not to implement the changes until 2029.
Given that the media seem to be confusing NI with tax, and many headlines stating that no more tax relief after £2,000 contribution, it’s probably fair to say there is going to be a need for the whole industry to improve their communications – whether that is to provide reassurance or just be a trusted source of “correct” information. Noting that many people are bemoaning the fact that they have taken out 25% tax free cash when they didn’t need to, it is clear that there is a history of poor communication in our industry.
Pension adequacy is also a hot topic, so disincentivising employers to provide good quality pension provision appears contrary to this objective. Maybe the delay assumes other economic measures will have started to drive direct benefits to the employment landscape and that by 2029 there will be other benefits from a growing economy.
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