Autumn Statement 2011

Introduction

The Autumn Statement was delivered on 29 November 2011.1 Against the backdrop of the continuing economic crisis, the Chancellor, George Osborne, announced a number of measures aimed at maintaining economic stability and enabling the Government to meet its fiscal targets.

Of particular interest to occupational DB pension schemes are the proposed changes to the tax rules relating to employer asset-backed contributions (ABCs).

Key Points

Draft legislation to prevent excessive tax relief on employer ABCs to pension schemes was published alongside the Autumn Statement and will be included in the Finance Bill 2012.
The next round of increases to SPA will see it rise to 67 by 2028.
The Government has confirmed that the basic state pension will be uprated in 2012 in line with its “triple lock” guarantee.
The Government plans to work in partnership with pension schemes to provide additional investment for UK infrastructure.

Asset-backed contributions

At the 2011 Budget, the Government announced that it would consult on changing the tax rules around ABCs made by employers to registered pension schemes. In the consultation which followed,2 it sought views on proposals to limit tax relief to reflect the value of the assets received by the pension scheme.

The Government has confirmed that it will introduce provisions in the Finance Bill 2012 (to amend the Finance Act 2004) which are designed to ensure that the value of tax relief given to employers accurately reflects – but does not exceed – the amount of the payments received by schemes under ABC arrangements. However, it remains keen to preserve as much flexibility as possible for employers to continue using ABCs to manage pension deficits.

The legislation, which has been published in draft, will take effect from 29 November 2011 ensuring that no excessive tax relief arises in respect of new ABC arrangements set up on or after that date. Transitional provisions will apply to existing ABCs that have already received tax relief to ensure that the correct amount of tax relief is given by the end of an arrangement.

In other pensions news

Although there were no big surprises for pensions, the Autumn Statement heralded some additional developments.

State pension age

SPA will rise from 66 to 67 between April 2026 and April 2028, bringing forward the planned increase by ten years. This follows the recent changes introduced by the Pensions Act 2011, which accelerated the former Labour Government’s planned rise in SPA so that it reaches 66 in 2020 (rather than 2026), with the result that men and women’s SPAs also equalise faster (so SPA of 65 for all by 2018).3

However, given continuing increases in longevity, these are unlikely to be the last rises we see. Future changes in SPA will be based on demographic evidence and the Government is to consult further on the process to be put in place.

State pensions

From April 2012, the basic state pension will continue to be uprated by the Government’s “triple lock”, which guarantees the highest increase of earnings, prices and 2.5%. Next year, this will mean an increase of £5.30 to £107.45 per week.

National Infrastructure Plan 2011

As announced in the run-up to the Autumn Statement, the Government plans to work with UK pension funds to unlock additional investment in UK infrastructure. It has already signed a Memorandum of Understanding with two groups of UK pension funds (including the National Association of Pension Funds, the Pension Protection Fund and a separate group representing pension plans and infrastructure fund managers) to support additional investment in UK infrastructure, with a view to targeting up to £20 billion of new investment.

Next steps

Although the new ABC provisions will form part the Finance Bill 20124, the measures will take effect from the date of the Government’s announcement (29 November 2011). The Government estimates that the reforms to ABCs will save it around £450m per annum over the next five years.

However, it remains to be seen whether these and other measures in the Autumn Statement will provide Britain with sufficient shelter from the European debt storm.

1 In tandem with the OBR’s publication of its latest economic and fiscal outlook
2 The joint HM Treasury / HM Revenue & Customs consultation ran between 24 May – 16 August 2011, with the response published on 29 November 2011
3 Please see our Alert:”Better late than never? The Pensions Act 2011” dated 3 November 2011
4 Due to be published on 6 December 2011