The Autumn 2021 Budget revealed by the Chancellor of the Exchequer on Wednesday 27 October confirmed the government’s intention to review the charge cap in place for defined contribution pension schemes and announced provisions to correct an anomaly affecting low-earning occupational pension scheme members from 2024/25 onwards. The majority of the measures will be part of an upcoming Finance Bill, which is due to be published on 4 November.
Before the end of the year, the government will consult on further changes to the charge cap for defined contribution pension schemes that are used for auto-enrolment. These charges are in place to protect millions of workplace pension scheme savers, who do not have an active choice over their investments, from high fees. It is proposed that the consultation will consider options to amend the scope of the cap with the hope of allowing investment in the UK’s most productive assets, and enabling savers to benefit from better growth in long-term assets. We note that some commentators have questioned the effectiveness of another consultation into the charge cap, suggesting that there are more important considerations when it comes to boosting illiquid investments in defined contribution pension schemes, such as the need for more guidance from regulators around complex structures and assets.
It was also announced that the government plans to legislate to allow for direct top-up payments to be made to around 1.2 million low-earning individuals who are saving in a pension scheme using a net pay arrangement, as opposed to the relief at source system. This comes in response to a call for evidence issued by the government in July 2020 on these two main methods for administering tax relief on pensions. The intention is that the direct payments will level the playing field for individuals contributing to a pension scheme who earn less than the personal allowance, and therefore do not obtain any basic rate tax relief from HMRC as their contributions come from pre-tax income. Under the proposal, the system implementing the top-up payments will be introduced in 2025/26 and will apply to contributions made in 2024/25 onwards.
Other announcements included a confirmation from the government that it will invest £71 million in modernising the administration of pensions tax relief and confirmation that the normal minimum pension age will be increased from 55 to 57 with effect from 6 April 2028. Additionally, the government provided an outline of the various measures that will be introduced to facilitate the remedy of the age discrimination in public service pension schemes, which was found by the Court of Appeal in McCloud.