Our experts from across Barnett Waddingham address the issues that will impact both employers and trustees from this year's Government Budget.
Corporation Tax increase
Simon Taylor, Partner at Barnett Waddingham, said: “The increase in corporation tax in 2023 means companies may want to defer their DB pension contributions to gain higher tax relief, and the super deductions for business investment will undoubtedly drive many companies to prioritise internal investment to rebuild their covenants over pension contributions too.
“This is going to make for some complex conversations between companies with DB schemes and their pension trustees – it’s vital that investment journey plans are flexible to these factors, without coming at the sacrifice of what is best for members.
"Our DB Navigator framework helps scheme sponsors and trustees agree robust and flexible journey plans that balance the needs of the sponsor and scheme appropriately."
Inheritance Tax frozen
James Jones-Tinsley, Self-Invested Technical Specialist at Barnett Waddingham, said: "The inheritance tax nil-rate band will remain at £325,000 until 5 April 2026, which potentially means that an increasing number of people may be subject to 40% tax on their estate value in excess of this figure. Accruing funds for retirement via trust-based pensions like SIPPs and SSASs, which sit outside the value of someone's estate, therefore makes more sense – it’s vital that savers and advisers read the small print, and adjust their plans accordingly to ensure they’re not caught out in later life."
Lifetime Allowance frozen till 2026
Nilesh Shah, Associate at Barnett Waddingham, said: "As widely rumoured, the LTA has been frozen for the remainder of the Parliament untill 2026. Even more doctors, teachers and others who are "doing the right thing" will now be looking to retire early.
“The Exchequer impact of this is estimated at an additional tax income of £80m in 2021/2022, rising to £300m in 2025/2026. As with many of his predecessors, the Chancellor was not bold enough to address the disparity between the tax treatment of DB and DC pensions."
Sonia Kataora, Partner at Barnett Waddingham, said: “DWP has already been working to encourage the use of more illiquid assets in DC schemes – and making the point that this will support an economic recovery.
“Removing some of the impediments to investing in illiquid assets in DC schemes is a good thing for DC members, as it will allow access to a wider source of returns, often uncorrelated to traditional return sources.
“DWP has recently consulted on changes to the charge cap requirements in order to ease difficulties with performance fees, which are commonly used by illiquid funds, which is one obstacle. Today’s announcement shows intent to alleviate any practical concerns around such issues.
“Some DC schemes do already successfully invest in less liquid assets – for example, by pooling alongside more liquid investments and planning ahead for potential issues. And of course property has been used fairly commonly as an investment by DC schemes for many years.
“DB schemes do not face the same practical impediments to investing in illiquid assets as DC, and very few do actually have an allocation to, for example, infrastructure. So it seems unlikely that making these asset classes more available to DC will suddenly open up the levels of investment needed to boost our post-COVID economic recovery although this is a longer term play on the asset class given the longer investment horizon of DC schemes.”
£126 million investment to Chancellor's apprenticeship incentive scheme
David Stoddard, COO at Barnett Waddingham, said: “For many financial and professional services firms, recruiting apprentices has offered multiplicity of thought, creative problem-solving, and a way to challenge conventional approaches in the fast-moving and digitally-reliant world of Covid Britain. The Chancellor’s apprenticeship incentive scheme and £126 million investment in traineeships offers an additional vital support line for that to continue.
“Now, businesses must take advantage of the scheme and collaborate to create space for apprentice and graduate roles, establishing early careers networks, and creating a positive working environment, albeit virtually, for new recruits to both learn and have excellent early career experiences. Not only will this provide hope and broaden opportunities for young people, it will also invest in future pipelines of talent, and more immediately enrich companies and help drive their business forward as the UK moves into recovery mode.”
Further extension of the furlough scheme
David Collington, Head of Benefits Consultancy at Barnett Waddingham, said: "It is a great relief for many struggling employers – particularly those in the retail and hospitality sectors - that Rishi Sunak’s furlough scheme is to be extended to September 2021, albeit that they’ll have to contribute an extra 10% from July and 20% more from August. However, it is important now – more than ever before - that employers take immediate action to look after wellbeing of employees on furlough. Wellbeing issues are all too often hidden from sight until they become serious. If employers don’t take action now, they could be navigating straight into a wellbeing iceberg that causes significant damage to their business.
"It’s natural for those with mental health worries during furlough to be concerned about what their employer and colleagues may think; they may be worried about ‘letting the side down’. Leading employers must address this head-on by fostering a safe culture where barriers are removed, emotions are acknowledged, and staff are positively encouraged to talk about mental health.
"Don’t underestimate that impact of furlough on physical health. Without the routine of leaving home for work every day, we have seen exercise levels of those on furlough have dropped significantly. A drop in physical activity inevitably impacts mental health too. A daily workout session with Joe Wicks is not everyone’s cup of tea but a simple walk around the block can help you prepare for the day ahead.
"Employers can do so many simple things which will make a real difference; staff training, group quiz calls, encouraging staff to take up a new hobby (or rekindle an old one), online cooking clubs, volunteering opportunities with local charity partners and of course the simple but very effective group daily step challenge.
"Employers who actively support their employees physical and mental health now and throughout the transition back to the workplace will reap the rewards in the future with a happier more productive workforce."
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