This year has been a particularly busy one when it comes to pensions, with reforms announced that will have a long-term impact on our retirements. It’s been hard to whittle down everything that has happened, but these are the changes that will make the biggest difference.
This hit the headlines with its aim of making pensions bigger, better and more efficient, potentially boost growth in the UK economy as well.
The reforms seek to tackle the fragmented market by reducing the number of small schemes in operation. Instead, we will see the birth of pension mega funds – huge schemes akin to those seen in Canada and Australia. The idea is that they can drive down cost, improve efficiency, and enable schemes to invest in assets they otherwise have not been able to.
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The government argues that such changes will boost people’s pension pots as well as the UK economy by helping them invest more in British businesses. This is long-term reform that looks set to transform the UK’s pension industry over the coming years. It has, however, attracted criticism from those who are concerned schemes may be pressured into investing in UK assets.
The revived Pension Commission will look at whether we are saving enough for retirement. The original Pension Commission is credited with auto-enrolment and getting millions more people saving into a workplace pension, so the bar is set high.
We expect it to look at areas such as how, when and if auto-enrolment minimums need to change, and it will run alongside a review into state pension age. We aren’t expecting the Commission to report back until 2027, but its recommendations could have far-reaching effects on our long-term planning.
Salary sacrifice reform was one of the big stories from the autumn budget. Salary sacrifice is where you give up a portion of your salary in exchange for a benefit such as a pension contribution. Because your salary is lower, you pay less income tax and national insurance (NI), and your employer also saves on NI.
From 2029, employee pension contributions made through salary sacrifice will only attract national insurance (NI) savings if they are less than £2,000 per year. Anything over and above that will attract both employee and employer NI. It’s a move that could deter people from increasing their pension contributions and it will push up employer costs.
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This in turn could lead to lower pay increases in the future, which again will impact people’s ability to increase contributions. However, the change isn’t due until 2029 so there is still time to make the most of the system as it currently stands to boost your financial resilience.