Government's Autumn Statement 2023: issues impacting employers and trustees

Chancellor Jeremy Hunt has unveiled the Government's latest tax and spending plans in the House of Commons, with changes in line for businesses and pension schemes.

Pension 'pot for life' proposals

Mark Futcher, Partner and Head of DC, comments:

"We now have a bit more clarity on the so-called ‘pot for life’, which will – according to the Chancellor – contribute towards the Government’s ambition to give the average new saver an extra £1,000 a year in retirement. The proposed consultation is in fact for a ‘stapling’ model, with new employees asking their employer to pay into their existing pot. 

“Stapling can be done in a number of ways, but essentially it risks members keeping their first pension pot for the rest of their life. How that first pot is decided is up for debate – would any authorised master trust be allowed? Would there be increased regulatory requirements on value for members? Will employers have a responsibility to mirror the existing transfer rules to mitigate the risk of harm to their staff? Even once established, we risk an administrative nightmare without a robust central clearing house. 

“As for improving people’s pot at retirement, it’s hard to see how this would help. Staying in the same pot means savers risk delays to investment decisions, poorer products, a lack of employer governance, and higher fees, as individual employees will always get a worse deal than large firms. What’s more, if we see more individual retail policies and less consolidation, the Mansion House proposals to use scheme funds to invest in the UK become even more difficult to implement. 

“A consultation brings with it no certainty of change, but even if the consultation results in a positive outcome, making this work would easily take a decade. It has taken almost that long for the Government to fail to deliver a pensions dashboard – I won’t be waiting with bated breath for this reform to come to pass.” 

Stamp Duty relief

Matt Tickle, Partner and Chief Investment Officer, comments: 

“Hidden in the little red book is some good news which deserved to make the cut for the speech. The Chancellor is going to extend the relief from Stamp Duty on shares. It will now include smaller, innovative growth markets, as well as increase the threshold for the market capitalisation condition that is used within the exemption from £170 million to £450 million. These changes will be included in the Autumn Finance Bill 2023 for implementation from 1 January 2024. 

“The UK’s approach to levying Stamp Duty on shares is very much a global outlier. Whilst a few other countries do tax share purchases in this way, very few tax them at anywhere near the rate the UK does. International investors allocate their capital based on where they think they’ll get the best returns, after taking risks into account. Reducing Stamp Duty on UK shares should boost the overall returns from UK shares and contribute to an increase in foreign investment into the UK. It could also encourage some domestic investors to repatriate funds from overseas. Solving this issue is a small but sensible step towards making the UK a more attractive place to invest once again.”  

Reformation of the welfare system 

Julia Turney, Partner, Platform and Benefits comments:

"In a bid to solve the UK’s productivity puzzle and boost a workforce still struggling to return to pre-covid numbers, the Chancellor has announced a slew of measures designed to help disabled people back into work. Ranging from a long overdue reform to the fit note system and the announcement of a new universal support programme, it's good to see the Government take an innovative approach to tackling such a sensitive issue. However, the plans are still high level and vague at this stage. Success (or failure) depends on execution. We can’t burden employers with more compliance, but instead can arm them with accessible, cost-effective solutions. Nor can we force individuals into work that's unsuitable for them. We need to create an environment in which they thrive. By finding this balance, we don’t just solve the productivity puzzle, we also foster a pool of talent to ensure a resilient workforce."

PPF consolidation

Richard Gibson, Partner, Actuarial Consulting, comments:

“The Chancellor’s announcement that he will consult on the Pension Protection Fund (PPF) to establish a public consolidator marks a pivotal step towards addressing the needs of pensions schemes less well served by the market. This is indeed a positive development and welcome news.

“The PPF is already an incredibly successful consolidator, managing over 1,000 schemes; a testament to its robust governance, streamlined processes and simplified benefit administration.

“Presently, smaller schemes must prepare carefully to be able to access the insurance market. The consolidator market currently remains inaccessible to smaller schemes. The Chancellor’s promise to finalise superfund legislation and the prospect of a more permissive regulatory framework could breathe new life into the market and open up solutions for smaller schemes which cannot afford insurance.” 
 

Authorised surplus payments charge

Mark Tinsley, Principal and Senior Consulting Actuary, comments:

“Reducing the authorised surplus payments charge from 35% to 25%, as announced in the little green book, is welcome news, especially for those schemes that already have a surplus on a buyout basis. Firms paying into schemes, which bear much of the risk, have long felt penalised by a 35% tax on exit and have often taken actions to avoid a 'trapped surplus' emerging in the first place. The announced changes will therefore hopefully go some way to alleviating these concerns, which in turn could speed up the timeframe to full buyout funding for some schemes.

“Due to the way that the tax charge is applied, the 25% headline rate actually equates to a 20% tax charge on the surplus in practice. Therefore, the change potentially introduces unintended future tax avoidance opportunities – a potential net 5% saving for companies with a 25% corporation tax rate. There are practical reasons why companies are perhaps unlikely to look to exploit this loophole, though Mr Hunt would be well advised to introduce anti-avoidance tests.

“More generally, the Government has signalled that it remains keen to further explore ways in which barriers to returning surpluses to sponsors can be removed and incentivise investment in 'productive investment' in the process. While we are supportive of the general policy intent, it is essential that appropriate safeguards are put in place to protect savers and the Pension Protection Fund from the risks of the proposals under consideration.”

Illustration of how tax charges are applied