A Budget intended to help drive economic growth as we recover from Coronavirus also brought some welcome changes for the pensions world, says a Quantum Advisory expert.
Pension tax top-ups for low earners
The Government will develop a solution to the �net pay anomaly� where some low earners can miss out on tax relief if they pay pension contributions through a �Net Pay� arrangement.� From 2025/26 a system will be put in place that provides top-ups to affected individuals to broadly give the same outcome as if they paid contributions through a �Relief at Source� arrangement.
The system will apply to pension contributions made from 2024/25 onwards.� The Government calculates the average benefit for affected individuals to be �53 per year.
Simon Hubbard, a Senior Consultant and Actuary at Quantum Advisory, said: �Industry commentators have been asking the Government for years now to resolve the unfair tax treatment of pension contributions by low-paid workers.� This change will be welcomed by many, though it�s disappointing that it will not apply until April 2024. However, the bigger question of increasing the auto enrolment minimum contribution amounts has been avoided for a further year.�
Changes to the charge cap on defined contribution (DC) pensions
The Government will consult on how the 0.75% pa cap on DC pension scheme charges can be adapted to allow for well-designed investment performance fees.� The cap currently prevents the default investment strategy from using funds with a performance-related fee because it could exceed the cap if performance is strong.
