Budget 2024: impact on Pension Schemes
Yesterday I set out my initial post budget thoughts Budget 2024: UK Defined Contribution Pension Changes (irwinmitchell.com)
Today, I am going to look at the key points from the Chancellor’s speech and the accompanying “Budget Documents”, conveniently listed at Spring Budget 2024 - GOV.UK (www.gov.uk)
As my colleague, Martin Jenkins predicted in January Pensions Law: What’s on the horizon for 2024? (irwinmitchell.com), there were no pension surprises in the Chancellor’s speech this year: The 2% cut in National Insurance was widely expected and the requirement that UK Defined Contribution (DC) pension funds must disclose how much of their funds they invest in UK equities, was announced on 4 March.
At the despatch box, Jeremy Hunt referred to “a Budget for Long Term Growth” and focussed on “more investment”, saying “…. we will build on the Edinburgh and Mansion House reforms to unlock more pension fund capital.”
Mansion House Reforms
We looked at the Mansion House Reforms in detail in September 2023 Pension scheme surpluses: The Mansion House Reforms (irwinmitchell.com) and we understand that the Government is working with the Association of British Insurers (ABI) to finalise a framework for monitoring progress on the Mansion House Compact ahead of its first anniversary in July 2024.
Value for Money (VFM) proposals
In 2021, TPR and the FCA published a joint discussion paper to aimed at developing common measurements to compare DC schemes, to enable industry professionals and pension savers to see which offers more value for money. In 2022, Guy Opperman, the pensions minister at the time, said “ensuring value for money for the record number of Brits now saving for retirement is one of my key priorities.”
In his budget speech, the Chancellor announced that the Government “will give new powers to The Pensions Regulator and Financial Conduct Authority to ensure better value from Defined Contribution schemes by judging performance on overall returns not cost.”
According to paragraph 5.105 of the Budget document, the government will legislate at the earliest opportunity to apply the VFM framework across the market and provide TPR with new powers, using secondary legislation if necessary to ensure key disclosures are in place by 2027. The Government also intends to give both regulators “the full range of regulatory powers available” to use against schemes which “are persistently offering poor outcomes for savers,” including a new business ban and even winding up a scheme “where necessary”. (Paragraph 4.28 HC 560)
Investment in UK growth opportunities – Children’s homes and LIFTS
Building on the themes of growth and investment the Chancellor also said “We will make sure there are vehicles to make it easier for pension funds to invest in UK growth opportunities….”
As a start, a statement in paragraph 2.25 on page 37 of the accompanying Spring Budget document HC 560 HC 560 – Spring Budget 2024 (publishing.service.gov.uk) reveals that the Government “will work with the Local Government Pension Scheme to consider the role they could play in unlocking investment in new children’s homes.”
Paragraph 4.36 (page 58) of HC 560 reveals that the winners of the Long-Term Investment for Technology and Science (LIFTS) competition were Schroders and Intermediate Capital Group (ICG), supported by pensions capital from Phoenix Group. Together with the government’s £250 million, this is intended to generate over a billion pounds of investment into UK science and technology companies.
In addition, the British Business Bank has awarded ICG £100m to invest in life sciences companies based in the UK. This is also being matched by Phoenix. The mandates are subject to “ongoing commercial discussions”.
Interestingly, Nick Lyons, who is the current Chairman of Phoenix, was the Lord Mayor of London during 2022 to 2023 and who devised the Mansion House pension reforms.
‘Pot for life’ proposals
The Chancellor confirmed that “Pot for life” is still on the government’s agenda saying, “We will continue to explore how savers could be allowed to take their pension pots with them when they change job”.
In the accompanying Budget report, the government said it would carry out further analysis and industry engagement “to ensure that this would improve outcomes for pension savers”.
Analysis / Our view
In pension terms, the budget has not changed the direction of travel for UK pension reform, and the key points were trailed over the weekend. However pension reform more generally remains high on the government’s agenda, with change evolving at a fast pace. Currently the industry is focused on preparing for the removal of the Lifetime Allowance on 6 April.
We still anticipate putting pension salary exchange arrangements in place for employers who have not yet implemented these. Perhaps such schemes have this government’s blessing as the Chancellor’s long term ambition is to abolish National Insurance Contributions as he regards them as a double tax on workers.
