The fears of many may have been realised in today’s emergency budget with the VAT hike and the axe falling on the public sector. Pensions as we know it, though, live to fight another day with government plans to end compulsory annuitisation at 75 and the increase in state pension age to 66 pushed back and made subject to further consultation. However, today’s budget did contain a number of important measures as regards pensions with an agreement to restore the earnings link for the basic state pension, with a ‘triple guarantee’ that pensions will be raised by the higher of earnings, prices or 2.5%. The government also underlined its commitment to auto-enrolment with the announcement that NEST (the new National Employment Savings Trust) will be treated as a registered pension scheme for tax purposes.
Importantly, the coalition has also taken forward plans to restrict pensions tax relief. However, the coalition wants to take the treatment of tax relief in a slightly different direction to that envisaged by Labour as the existing proposals on restriction of tax relief were felt to be overly complicated. Rather, the coalition has proposed that the cost savings may instead be achieved by the introduction of a significantly reduced annual allowance.
The March 2010 budget had also announced that legislation would be introduced to take effect from April 2011 to counteract tax avoidance via employee benefit trusts or to avoid restrictions on pensions tax relief. Importantly as regards pensions, the government today confirmed that EFRBs will be within the scope of this measure. Details of how this will work in practice will follow and for now, the pensions world awaits the outcome of the further consultations and in particular the long awaited review of the sustainability of public sector pensions which will follow as part of in the autumn’s Spending Review.