How the Autumn Statement affects your scheme

The scheme funding easements have been welcomed by a representative of the Association of Member-Nominated Trustees. But the changes to tax relief will provide schemes with some "extra unwelcome administration" and communication to do, according to tax consultants.

The Department for Work and Pensions will consult in the new year on whether to allow companies undergoing their valuations in 2013 or later, to smooth their asset and liability values.

"The government also recognises that volatility in measures of pension scheme deficits can make it hard for companies to manage their investment plans and attract external funding," said the full statement, published this afternoon.

The AMNT earlier this week said trustees were being put under "horrendous stress" by the burden of scheme funding, specifically the government's failure to alleviate it.

Barry Parr, founding co-chair of the AMNT, said the announcement was "great news", but added: "For many schemes, it is too late to stop them closing."

The DWP will also consult on providing the Pensions Regulator with a statutory objective to "consider the long-term affordability of deficit recovery plans to sponsoring employers", also expected in 2013.

In response to the announcement, the regulator said it welcomed a wider debate on the issue, "the outcomes of which will need to be clearly understood and worked through".

But there are concerns that smoothing will give schemes an unrealistic picture of the size of their liabilities, which could threaten them in the long run, especially if they are closed to new members and will not have any money coming into the fund. 

Rob Gardner, co-CEO at consultancy Redington, said: "It is a terrible idea. It is not just about mark-to-market; more and more pension schemes are in a negative cash flow situation."

In the meantime, schemes that are bound by the current funding framework could suffer, said Raj Mody, partner at PwC.

He added: "If market conditions get better and you are still hamstrung by having to smooth and count the conditions of the past, then smoothing is going to count against you."

How tax changes affect your members

The chancellor's speech also revealed further reductions in pensions tax relief. From 2014, the lifetime allowance for tax-privileged saving will be reduced from £1.5m to £1.25m, and the annual allowance from £50,000 to £40,000.

Gordon Sharp, director of KPMG’s pension investment consulting team, said: "Schemes are already having to cope with people being limited by the present annual allowance and the present lifetime allowance, but with these numbers going down more people will be affected.

"Although it is meant to be hitting the best-off who can afford it, it will provide some extra unwelcome administration and there will be at least some extra cases where people surprisingly quite low down the scale can [be] affected by it."

Schemes members that might not be affected straightaway by the changes could be caught further down the line. Sharp added: "This is going to cut back on the way people can catch up on pension savings in their later years."

The government also increased income drawdown – the amount of income that may be taken from a pension fund that remains invested – from 100 per cent to 120 per cent on the rates set by the Government Actuary's Department.

Investment opportunities

Schemes also to have access to longer-dated gilts next year, but only at an extra 10-year duration. In the statement, the government announced gilt issuance in the 50-60-year range will be made from 2013.

The move comes as a response to a consultation by the Debt Management Office on the case for issuing gilts with maturities in excess of 50 years.

The Treasury said gilts with maturities in excess of 50 years could represent cost-effective financing for the exchequer, but it recognised that the strength of demand for these instruments was uncertain and that a cautious approach to issuance is appropriate.