Autumn Budget 2021: updates to pension law

The Autumn Budget and Spending Review 2021 were relatively quiet on pensions: 

Consultation on further changes to charge cap

The Chancellor announced that the government will consult before the end of the year on potential further adjustments to the charge cap for DC pension schemes used for auto-enrolment. The level of the current cap on annual management fees (0.75%) has led to concerns that it may be preventing defined contribution schemes from being able to access long-term investments, such as infrastructure and real estate, because such investments are usually held in private equity or venture capital funds with charges which exceed this cap.

The consultation will consider options to amend the scope of the cap to "better accommodate well-designed performance fees to ensure savers can benefit from higher return investments, while unlocking institutional investment to support some of the UK’s most innovative businesses".

Pensions tax relief: net pay arrangements

The government will legislate in the future (in 2025/26) to introduce a system whereby HMRC will make top-up payments directly to low-earning individuals saving in a pension scheme using a net pay arrangement. This will help align the position of those who save through a net pay arrangement with equivalent savers in pension schemes that use relief-at-source, thereby resolving inequity in the two systems.

This inequity arises because individuals who earn less than £12,750 (the current personal tax-free allowance) and who contribute to a net pay scheme do not receive tax-relief on their contributions as these are made out of pre-tax income and no direct payment of basic-rate relief is made by HMRC into their pension scheme. In contrast, if such an individual contributed to a relief-at-source scheme they would benefit from basic-rate tax relief by way of a direct payment into their pension scheme from HMRC.

Taxation of McCloud remedy compensation 

The government will legislate by inserting a power in the Finance Bill 2022 to make secondary legislation so that the McCloud remedy can work retrospectively. The McCloud remedy is needed to resolve the age discrimination identified by the Court in respect of certain reforms made in 2015 to public sector pension schemes (The Lord Chancellor and Secretary of State and another v McCloud and Mostyn and others and Sargeant v London Fire and Emergency Planning Authority and others [2018]). The remedy will have retrospective effect as from 1 April 2015.

Changes to the "scheme pays" reporting and payment deadlines

The Chancellor confirmed the government's intention to legislate in the Finance Bill 2022 to extend the reporting and payment deadlines applying to the "scheme pays" mechanism by moving the deadline for paying the annual allowance charge to when the administrator is notified of the charge rather than a fixed period from the end of the tax year. 

This caters for difficulties which the 'deferred choice underpin' McCloud remedy could otherwise create for certain members through the potential imposition of an annual allowance charge which members may not be able to settle.

This change will have effect from 6 April 2022 but will apply retrospectively from 6 April 2016.

Increasing normal minimum pension age 

It was also confirmed that the Finance Bill 2022 will increase the normal minimum pension age from 55 to 57 with effect from 6 April 2028. Our insight update has further details of this change.