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Budget 2018

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Volume 2018 | Issue 55 | 30 October 2018

Budget 2018 is likely to have been well received by many in an industry often lamenting the near continuous pace of change on business. The Chancellor, Philip Hammond, has avoided the temptation to fund promised investment in the NHS etc. via tax rises on employee benefits.

While the Treasury did not announce any headline measures for the employee benefits industry, there were issues to note.

In this issue: News on the Pensions Dashboard | Pension Fund Investment in Patient Capital | A Ban on Pensions Cold Calling Inches Forward | Confirmation of the 2019/20 Lifetime Allowance | In Closing

News on the Pensions Dashboard

Having been originally announced in 2016, momentum on a project designed to provide consolidated details of an individual’s complete pension savings, has been slowed by a long-delayed feasibility study from the Department for Work & Pensions (DWP). This was originally meant to be published at the start of 2018 and is still awaited, while rumours circulated over the summer of the dashboard’s possible demise.

The Budget provided some welcome news, with confirmation that the government is “taking steps to support the launch of Pensions Dashboards, innovative tools that will for the first time allow an individual to see their pension pots, including their State Pension, in one place.”

This not only appears to confirm the State Pension data will be included (something that is vital for the dashboard project to work) but also reference to “Dashboards” seemingly indicates that there will be more than one dashboard, a point that the DWP has apparently been investigating this year.

The DWP will be consulting later this year on the detailed design that looks to harness innovation while protecting consumers. This will presumably be unveiled at the same time as the DWP’s long awaited feasibility study. The Budget announced extra funding of £5m in 2019/20 to help introduce the dashboard initiative.

Pension Fund Investment in Patient Capital

Patient capital investment involves the provision of long term finance to high potential firms to enable them to reach their full potential. Investment is typically directed towards start-ups which are looking to up-scale and/or innovate but might also be needed by more established businesses which are looking to achieve next-level growth. In practice, many of these investments are likely to be targeted towards capital intensive R&D businesses, businesses with long product development cycles or businesses with innovative technologies or significant intellectual property needing access to growth funding.

Last year, a plan was unveiled to unlock £20 billion of finance for innovative high-growth firms, and established a taskforce to address the barriers to pension investment in patient capital. Within the next 8 years, UK defined contribution pension schemes are expected to have total assets under management of more than £1 trillion, with the government recognising the vital role they have in long-term financing for UK growth and innovation.

The Chancellor has now announced a series of further measures:

  • Through the British Business Bank, the government will support pension funds to invest in growing UK businesses. Several of the largest UK providers of defined contribution pensions have committed to work with the British Business Bank to explore options for pooled investment in patient capital.
  • By the end of this year, the Financial Conduct Authority will publish a discussion paper looking at how effectively the UK’s existing fund regime enables investment in patient capital, and also produce a consultation on updating the permitted links framework to allow unit-linked pension funds to invest in an appropriate range of patient capital assets.
  • The DWP will consult on the pensions charge cap next year to ensure that it does not unduly restrict the use of performance fees within default pension schemes, while maintaining member protections.

A Ban on Pensions Cold Calling Inches Forward

Alongside the main Budget papers, the Treasury published its response to the second of two consultations it has conducted on introducing a ban on pensions cold calling: one of the most common methods used to initiate pensions fraud. This welcome measure will be brought into effect as soon as possible, although no date is given in the government response document.

Confirmation of the 2019/20 Lifetime Allowance

Having fallen as low as £1 million, the lifetime allowance is now uprated each year by the annual increase in the Consumer Prices Index (CPI) to September. The CPI increase for September 2018 had already been published, but the Budget confirms the increase in the lifetime allowance (and takes the opportunity to incorporate some rounding) from next April to be £1,055,000.

In Closing

Fears over possible increases in Insurance Premium Tax and Inheritance Tax have proved unfounded, as has speculation about reductions in the pensions annual allowance or a major overhaul of the basis for providing tax relief on pension contributions.

This is all good news, although as with everything these days, much depends on Brexit. There were vague references in the Budget speech to the possibility of a Spring Budget next year if the negotiations with the European Union do not pan out as expected. If that is the case, then focus on what the Chancellor had to say in October may well fade quite quickly.

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