Steven Cameron, pensions director at Aegon, is predicting the Chancellor’s Autumn Statement, likely the last before the General Election, will produce another bumper pack of announcements on pensions and investments, following on from Jeremy Hunt’s July Mansion House speech and March Budget.
He also speculates we may see a consultation on the boundary between advice and guidance, extending how regulated firms can support their customers alongside current financial advice.
He points to five areas he sees as likely to be affected.
1. The economy, inflation, tax cuts and state pensions
The Autumn Statement will be heavily influenced by the latest figures from the OBR on the nation’s finances, with rumours of more than expected headroom. The latest inflation figure of 4.6% means the Government has delivered on and indeed surpassed its commitment to halve inflation from its end-2022 10.7% level, one of the Chancellor’s pre-requisites for considering tax cuts.
While rumoured improved fiscal headroom and the achievement of the Government’s inflation target will raise hopes of immediate tax cuts, I’d expect the Chancellor to hold back on these until his Spring Budget. While a cut in rates would be the most eye-catching, lower earners could actually benefit more from thresholds being unfrozen. Any cuts in taxes are likely to be limited to those which won’t risk recreating inflationary pressures, for example extending business reliefs or cutting inheritance tax.
We could also receive confirmation on whether the Government is honouring the state pension triple lock next April in full. Will the Government grant the full 8.5% increase, or seek to save some money by excluding public sector bonuses from the earnings growth figure and opt for 7.8% instead? With inflation now sitting at 4.6%, but still well above the Bank of England’s 2% target, an 8.5% increase could be more than double the ruling rate of inflation come next April.
2. Taking forward the Mansion House pension and private equity investment proposals
The Chancellor is expected to announce next steps around encouraging defined contribution (DC) pension schemes to invest more in private equity.
The Chancellor launched a massive pack of papers and consultations alongside his Mansion House speech, with the common theme of encouraging defined contribution (DC) pension schemes to invest in private equity. We expect an update on next steps for the proposed DC value for money framework which will bring in standard metrics on investment performance, charges and customer service standards. Introducing new variations of Collective Defined Contribution pension schemes, with a structure more suited to investing in private equity, is also likely to feature, as is offering members of trust-based schemes a wider range of retirement choices and support. The July proposals for dealing with the many millions of ‘left behind’ small deferred pension pots of under £1000 proved controversial but again, we expect an update on latest Government plans.
These come alongside other major pensions developments such as pension dashboards and the highly important extension of auto-enrolment. We strongly encourage the Chancellor to take a phased and prioritised approach to implementation, rather than risking a chaotic attempt to implement so many radical changes all at once.
3. Reforming ISAs
There are reports that the Chancellor has been considering a variety of reforms to the ISA regime.
We may see changes to ISA rules to encourage more investment, perhaps specifically within the UK to stimulate growth. Speculation includes increasing the annual investment limit, allowing more than one ISA per year or changing the Lifetime ISA rules – such as raising the age restrictions or investment limit. But with an Election approaching, it’s important to be realistic about what can be implemented by April.
4. Review of the ‘advice / guidance boundary’
HM Treasury and FCA have promised a consultation on the definition of ‘regulated financial advice’ and the potential for other forms of support and guidance to be offered alongside this.
Aegon hopes that alongside the Autumn Statement, we’ll see a joint consultation from the Treasury and the Financial Conduct Authority to review the boundary between advice and guidance. While financial advice can be highly valuable, it comes at a cost not everyone can afford. We’d like to see changes to the rules so financial services firms can offer a more personalised form of regulated guidance as an additional means of helping their customers make better decisions.
5. Pensions lifetime allowance
The biggest surprise in the Spring Budget was the scrapping of the pensions Lifetime Allowance, which is due to come into effect next April. While very much welcomed as a means of encouraging many individuals to remain in work, sorting out the detail is proving fiendishly complex for HMRC, with unwelcome knock-on implications for certain death benefits. To avoid last minute confusion and unintended consequences, we’d encourage the Chancellor to allow more time to sort out the details by extending the interim arrangements for a further year till April 2025.