The pensions industry has learned to brace itself for surprise over the last couple of years, so was relieved to escape relatively unscathed in Wednesday’s Autumn Statement.
Chancellor George Osborne’s spending review was anticipated to cover the state pension and pooling plans for local authority pension fund assets, and steer clear of the pensions tax relief consultation – which has been pushed back to next spring.
Despite meeting these expectations, Osborne’s announcement of a delay to auto-enrolment contribution increases left many questioning the motives behind it.
Auto-enrolment delays
The chancellor announced that the next two phases of minimum auto-enrolment contribution increases would be delayed to align them with the tax year.
A Treasury document said: “Instead of increases taking place in October [2017], they will now occur in April the following year.”
Pushing back the contributions rise will save the government money: a policy costing document estimated the delay would save £350m or more in the 2017/18 financial year and £450m or more in 2018/19.
Margaret Snowdon, chair of the Pensions Administration Standards Association, said the move would help micro employers who were not yet fully prepared for auto-enrolment.
To delay now… could actually be quite a nuisance because people have already set up [their systems] on this basis
Tom Barton, Pinsent Masons
“Some of the micro employers don’t understand [it] and it could be bad for jobs if it’s brought in [too soon],” she said.
However, she added it could create a gap in savings between employees of small and micro employers and those in larger companies.
Snowdon acknowledged a delay would mean less money being put aside. “Something needs to be done to address that gap,” she said. “I’ve suggested the contributions, when they come in, come in at a higher level.”
Others argue that the delay is not significant. Tom Barton, partner at law firm Pinsent Masons, said over an individual’s working life a delay of six months would not make a huge difference, but added: “You could question whether it sends out the right message.”
He explained: “Auto-enrolment has been on the cards for an awfully long time. The consistent message that has come back every time it’s been scrutinised is ‘no, we’re not going to delay’. To delay now… could actually be quite a nuisance because people have already set up [their systems] on this basis.”
State pension shifts
Aside from the delay to auto-enrolment, the chancellor’s review revealed the largest real increase to the basic state pension since 1991, up £3.35 to £119.30 a week, as of 2016.
Osborne also unveiled the much-anticipated figure for the new single-tier state pension, which will come into force on April 6 next year. From that date, people reaching state pension age who qualify for the full state pension will receive £155.65 a week.
Glyn Bradley, senior associate in consultancy Mercer UK’s innovation, policy and research team, urged for caution around this headline figure. “Most people aren’t going to get that,” he said.
Giving evidence before the Work and Pensions Committee on Wednesday, Steve Webb, director of policy and external communications at Royal London and former pensions minister, said the new single-tier aims to overhaul and simplify state pensions.
Webb stressed the importance of personalised statements in communicating the changes to the public.
“Clearly it’s important people know where they stand,” said Webb. “People are so diverse and have such different histories in the state pension system you cannot get a general message across.”
Retirement age review
Osborne also signposted an ongoing review of the link between the state pension age and rising life expectancy across the UK.
Chris Wagstaff, head of pensions and investment education at Columbia Threadneedle Investments, said the state pension age would be around 80 or 81 today if it had increased in line with the nation’s improving longevity over the past century.
But against a backdrop of people saving insufficiently while living longer, the state retirement age increasing and changes to the state pension, Wagstaff said there will be trouble ahead.
“We have inadequate workplace pension provision on average in this country… Unless somebody does something quite radical quite soon we are potentially going to be facing quite a parlous situation in the years to come,” he said.
