Autumn Statement – Highlights for pension schemes

There were a number of points of relevance to pension schemes in the Chancellor's Autumn Statement, although these were set out in the papers issued alongside the Statement, rather than announced by the Chancellor himself.

Reduction in tax on surplus repayments

Where surplus is repaid to sponsoring employers, whether on winding up a scheme after buyout of benefits or while a scheme is continuing, a tax called an authorised surplus payment charge is levied.  The rate is to be reduced from 35% to 25% from 6 April 2024.  As with all the announced tax changes, the reduction may not survive a change of government following an election so there may be value in accelerating the completion of buyouts or valuations which may result in material surpluses available for refund.

Requirement for decumulation option

At retirement a member of a defined contribution scheme has a lot of options about taking a lump sum, buying an annuity, drawing down pension etc.  These options and the exercise of them are grouped together in a single term: "decumulation". It is proposed that occupational DC schemes be required to offer decumulation services and products at an appropriate quality and price when members retire, with a default decumulation solution.  This, combined with the additional value for money and compliance requirements already in the pipeline, will make company DC schemes, including DC sections in hybrid schemes, increasingly complex and costly to administer.  Employers that offer their own occupational schemes may want to review whether moving to a master trust or group personal pension alternative may be a more effective means of delivering pension benefits for their employees.  The Government's aim is to promote a more consolidated pensions market where the vast majority of savers have been transitioned to schemes of £30 billion or larger by 2030.

Abolition of Lifetime Allowance/New Taxable Pension Commencement Excess Lump Sum (PCELS)

The complete abolition of the Lifetime Allowance is to proceed on 6 April 2024. The Annual Allowance remains in place as increased on 6 April 2023. HMRC's previous policy paper in July has been confirmed. The Lifetime Allowance is to be replaced from 6 April 2024 by new lump sum tax allowances, permitting the payment of tax-free lump sum benefits on retirement and on death within fixed monetary limits based on what was the amount of the Lifetime Allowance on 6 April 2023. Taxable DB lump sum benefits may be paid above those allowances, subject to the recipient's top marginal rate of income tax. Those taxable benefits will be authorised payments. Trustees will need to be aware of the new lump sum allowances and taxable DB lump sums when communicating with scheme members. This new regime may be altered if there is a change of Government at the next General Election.

The new PCELS is the taxable DB lump sum in excess of the tax-free cash available to members at retirement. The 22 November HMRC policy paper indicates that there are no limitations on this taxable lump sum. This would mean that it would afford the same flexibility for DB members in drawing a taxable lump sum at retirement as has been available to DC members through an UFPLS (uncrystallised funds pension lump sum) since 2015. This may reduce the desire of some DB members to choose to transfer from a DB to a DC scheme.

New requirements on trustees

The movement towards more professionalised, although not necessarily professional, trustees continues with the announcement that the Pensions Regulator will set up a register of trustees of occupational pension schemes.  This is likely to be maintained from information that trustees will have to provide in the annual return.  The DWP's announcement also referred to the availability of the two main trustee qualifications (offered by the Association of Professional Pension Trustees and the Pensions Management Institute), and the desirability of professional trustees being accredited.  The Pensions Regulator's new General Code will set accreditation for professional trustees as an expectation and the DWP has said it will continue to review whether to make this mandatory.

Other points to note

A number of consultation responses and calls for evidence were announced in the Autumn Statement which, although having no immediate effect, may result in longer term changes to the pensions landscape.  These include:

• consultation over whether employer pension contributions should be paid to a scheme nominated by individual employees so they can consolidate their pension savings from their various jobs in just one pension pot over their career (the "lifetime provider model");
• consultation over how the Pension Protection Fund can act as a consolidator for DB pension schemes that are unattractive to commercial providers;
• announcement of a default consolidators model for small DC pension pots; and
• engagement with industry on proposals to improve outcomes for pension savers, including how to shift employer incentives away from low fees towards long-term investment performance.