Today's statement from chancellor George Osborne was like a cold flannel to the forehead of the pensions industry, compared with the madness of March. That the taxation of dependants' pensions was a central talking point is probably telling.
Here are the main takeaways from the speech and the Treasury documents that affect your scheme, or more usefully in this case, your scheme members:
Boost for dependants' pensions (and Isas)
It is perhaps appropriate that following the kicking annuities received in March, today's changes left defined benefit schemes feeling hard done by.
The chancellor's decision to scrap the tax on income from joint-life or guaranteed-term annuities is a welcome boost for people who purchase these products and have the one-in-10 bad luck of dying between ages 65 and 75.
But why has it not been extended to spouses and dependants of defined benefit scheme members is anyone's guess. "There is no sensible reason for it," said David Robbins, senior consultant at consultancy Towers Watson, on the subject of joint-life annuities and scheme pensions. "They should both be treated the same."
Here are the main takeaways from the speech and the Treasury documents that affect your scheme, or more usefully in this case, your scheme members:
Boost for dependants' pensions (and Isas)
It is perhaps appropriate that following the kicking annuities received in March, today's changes left defined benefit schemes feeling hard done by.
Pass on your ISA tax-free. Pass on your pension tax-free.
Chancellor George Osborne
The chancellor's decision to scrap the tax on income from joint-life or guaranteed-term annuities is a welcome boost for people who purchase these products and have the one-in-10 bad luck of dying between ages 65 and 75.
But why has it not been extended to spouses and dependants of defined benefit scheme members is anyone's guess. "There is no sensible reason for it," said David Robbins, senior consultant at consultancy Towers Watson, on the subject of joint-life annuities and scheme pensions. "They should both be treated the same."
Two possible options: the government does not want to take the extra hit to the public purse by extending this into the DB sector; or perhaps it wants to keep a further policy sweetener in its pocket.
In addition to carrying through the previously announced abolition of the 55 per cent'death tax' on people who die under 75 with uncrystallised or drawdown defined contribution pension pots, Isas will also be able to be passed tax-free to spouses or civil partners.
Osborne told the country: "Pass on your Isa tax-free. Pass on your pension tax-free. We are delivering fairness for savers." Together with recent headlines on treating your pension as a bank account, the line between an Isa and a DC pension becomes ever blurred.
Public sector pension reform: the gift that keeps giving
During his speech George Osborne reiterated the benefits to the taxpayer of the public sector pension reforms currently underway.
"Today we are committing to complete the public service pension reforms proposed by Lord Hutton, bringing total savings of £1.3bn a year," he told the House of Commons.
There was further good news for the Treasury as employer contributions into the armed forces, judiciary and Scottish and North Irish public service pension schemes will be providing £390m by 2019/20.
Source: Treasury
1.15bn reasons not to ban DB-DC transfers
The Autumn Statement’s policy costings document reveals the £1.15bn boost to the Treasury of allowing defined benefit pension scheme members to move and take advantage of the DC flexibilities.
These savings offset the blow of other taxation changes made to small pots and the aforementioned annuity shifts:
Source: Treasury
Be careful what you communicate
What scheme managers and trustees did not hear today was what they really wanted to know: further detail on how they should be helping their members through the major reforms already underway, and coming to a head in April.
If anything, the extra detail of tax incentives makes the communication challenge harder. Glyn Bradley, senior associate at consultancy Mercer, said trustees should be extremely careful about handing out general tax guidance to scheme members.
"It is extremely difficult to talk about how a member may be taxed. It is a very tricky position for trustees."
The Pensions Advisory Service and the Citizens Advice Bureau, set to deliver savers' promised retirement guidance, were in a similar position, he argued.
This is an issue that pre-occupies the industry. Speaking at the Pensions Reform Summit this morning, Carolyn Saunders, partner at Pinsent Masons, said trustees and employers "walk a tightrope between providing information and giving advice".
Trustees are bound by a fiduciary duty to scheme members and must select funds, define member access to flexibilities and notify members of investment choices.
“[They] are not required to ensure that members understand DC benefits enabling good decision-making, nor are they required to meet members’ expectations,” said Saunders. “If they go further, trustees take other areas of risk upon themselves,” she added.
Employers must also navigate a complex relationship of trust with their employees that put them at risk. There is a reasonable expectation that employers will act in the best interests of their employees but this creates expectations that can easily be disappointed.
