Autumn Statement 2013: How it affects your scheme

Schemes have been urged to communicate a new option for employees with gaps in service to top up their state benefit. Plans could also face higher costs as a result of an increase in the state pension age, while cuts to the national insurance bill could benefit employers.  

In the statement, chancellor of the exchequer George Osborne announced the option for members to top up their state pension through national insurance contributions, which will apply to current pensioners and those who will reach state retirement before the single-tier pension is introduced.

"This will help those who haven't built up much [state pension] especially women and the self-employed," the chancellor told the House of Commons. 

The scheme will be introduced in October 2015 and will be "time-limited". Pensions commentator Ros Altmann said: “It might allow... people with small pots to buy an extra state pension."

The National Association of Pension Funds' head of policy Helen Forrest agreed it was an "opportunity" for people that have been unable to build up their qualifying years of NICs. "Women are a significant group who are likely to benefit from this option,” she added.

Working for longer

The chancellor said starting from the next election the SPA will be reviewed every parliament. "People should expect to spend, on average, up to one third of their adult life in receipt of the state pension," said the official document.

The pension age is likely to increase to 68 in the mid-2030s, and to 69 by the late 2040s. This could impact on schemes that pay bridging pensions to people between their scheme and state pension age, to ensure a regular income from retirement.

“These bridging pensions may be payable for longer and that will cost some schemes,” said Mike Smedley, pensions partner at consultancy KPMG. Members of public sector schemes are in for a double hit as their scheme pension age has been tied to the state entitlement as part of the reform to the sector. “If you are a nurse or a teacher, not only is your state pension now being paid later, your whole pension is being paid later,” Smedley said.

The changes may force schemes and the industry to provide more flexible retirement options. Kevin Wesbroom, senior partner at consultancy Aon Hewitt, said employers have to start thinking about the consequences of an older workforce. 

"We will need something that is a bit different from what we think of as a pension... something that is much more flexible, something is more dynamic and much more changeable as lifecycles adapt," he said.

The bigger issue around changes to the pension age and the additional contributions was communication to members, said Ed Wilson, director in consultancy PwC's pension team.

"Increasingly employees are having to take more responsibility for retirement savings; what we are finding with employers that want to invest to help employees [is they] are doing so in communications and education, so that employees have enough information to make the right choices," he added. 

The chancellor also announced a £2,000 employment allowance will be introduced from April 2014, and employer NICs will be abolished for under-21s earning less than £813 a week from April 2015.

“It’s good news, it perhaps means employers can afford to employ people better,” said Altmann. 

It should not be too much of an issue for schemes in terms of auto-enrolment as people under-21 do not have to be auto-enrolled, Altmann added. 

“If [employers] offer salary sacrifice there would be some debate about how they add in savings for those people,” said Danny Cox, head of financial planning at provider Hargreaves Lansdown.

Impact on investments 

The chancellor also announced it would remove the stamp duty and reserve tax on purchases of shares in ETFs domiciled in the UK.

Fiduciary manager Charles Stanley Pan Asset uses ETFs alongside other passive funds in a wholly passive approach to investing money on behalf of its pension fund clients.

Head of institutional business Bob Campion said these funds were increasing in popularity among pension fund investors, and he welcomed any move to make them more tax-efficient.

“[They are] really coming to the fore now in terms of the variety in the market… and the cost of them,” he said.

“You can access emerging market bonds, Asian property, pretty much any asset class that a normal pension scheme could consider.”

Tax relief will be provided on investment in social impact bonds. This could benefit schemes looking to increase commitments to responsible investments.