Autumn Statement 2023 Pensions, Pension Pot for Life and More
Published / Last Updated on 23/11/2023
Lifetime Allowance (LTA) Abolition Confirmed
- The government has confirmed that as part of the coming Autumn Finance Act 2023, the Lifetime Allowance (the maximum amount you build up in pensions during your life will be removed.
- The LTA is currently still in place but the tax charge for exceeding the LTA has been reduced to 0%. LTA will then disappear in April 2024.
- The LTA of £1,073,100 technically remains as it is used to cap the maximum pension lump you can draw from pensions during your lifetime £268,275 at 25% X £1,073,100.
Small Pots and Pension Pot For Life
- The average person moves jobs every 7 years but in some areas such as holiday destinations, hospitality may have 1 or even 2 jobs every year. This can mean many works building up 6 or 7 different small pension pots during their working lives but in hospitality it could quickly tick up to even more.
- Currently, small pots rules allow people over the age of 55 (up to 57 in 2028) to cash in pension pots of up to £10,000 (25% tax free and 75% with basic rate tax 20% withheld). This can be done a maximum of 3 times only.
- The government is to consult with the industry on a ‘pension pot for life’ i.e., you select your pension pot provider for life and employers will be required to then pay into your pension pot as part of existing workplace pension rules which may mean employers paying into a different pension pot provider for each provider.
- Imagine you have 50 employees and they each have a different pension provider. Now imagine you have 50,000 employees.
- Our best guess solution on this would be for each employer to continue to have one workplace pension scheme that they pay into for all employees and then when an employee leaves, there is an automatic transfer of the leaver’s pension to their ‘pension pot for life’. This process could be automated quite easily.
- Government will also consult on whether to authorise a small number of authorised ‘pension pot for life’ for life providers although this may feel anti-competitive for individual workers.
Flexible Access Drawdown for All Workplace Pensions
- The government has proposed that all occupational pension schemes should off ‘decumulation’ (flexible drawdown) services automatically as part of their at retirement options.
- This may be cumbersome for many smaller occupation schemes, so the Government is also to consult on establishing industry collective schemes e.g. ‘The Association of Plumbers Pension’ or the ‘Wheel Tappers and Shunters Pension’, much in the same way as Holland has.
Large Pension Schemes Value for Money
- The government will task the Financial Conduct Authority (FCA) to consult on the next stages of the new ‘Value for Money Framework’.
- Large pension schemes will be required to compare themselves against other peer pension schemes for features, flexibility and importantly, charges to ensure they are offering value for money.
Stop Defined Benefit Pensions Folding
- Some employers may find their defined benefit pension scheme becoming too expensive and are then able to bulk ‘buy out’ their pension scheme with big pension companies such as Legal & General by purchasing a guaranteed pension benefit for members using the existing defined benefit scheme fund plus topping this up with lump sums to buy out the benefit and protect pension scheme members benefits.
- Some employers e.g., British Home Stores and many other employers could not afford to do this with many folding due to pension scheme liabilities.
- When a defined benefit pension goes into liquidation, its assets are transferred to the Pension Protection Fund PPF (compensation scheme) with members in receipt of their pension income being 100% protection and those that are deferred i.e., yet to collect their pension are protected up to 90% of their accrued pension subject to a cap of £41,888 a year in the 2023/24 tax year.
- The government is to consult on the PPF acting as a collective consolidator or defined benefit pensions in liquidation but allow funds to be invested in productive finance. This may then make this more attractive for commercial providers to establish ‘collective’ defined benefit ‘super tanker’ schemes to take on pension schemes being ‘wound up’ rather than the default position of going to the PPF.
