Budget 2021: “A Three Point Plan”
4th March, 2021
Although the UK is beginning to emerge from the latest lockdown, government borrowing – the difference between public spending and income raised from taxes and other sources – will still reach a peacetime record in 2020/21. Before the Budget, forecasts anticipated that borrowing would reach between £350 billion to £400 billion. Also, not including new measures announced on 3 March, the government’s unprecedented financial support to public services, businesses and households came at a cost of around £280 billion. The sharp contraction in the economy in 2020 has meant significant falls in tax revenues.
It is within this context that the Chancellor delivered the Spring Budget 2021, unveiling a three-point plan to “protect jobs and strengthen public finances”:
- Billions to support businesses and families through the pandemic
- Investment-led recovery as UK emerges from lockdown.
- Future changes to strengthen public finances.
Whilst the headline from the Budget was continuing support for those hardest hit, with extensions to furlough, self-employed support, business grants, loans and VAT cuts (bringing total fiscal support to over £407 billion), key announcements from a pensions and benefits perspective were:
- Extension of the Coronavirus Job Retention Scheme (CJRS) for a further five months from May until the end of September 2021. Employees will continue to receive 80% of their current salary for hours not worked. There will be no employer contributions beyond National Insurance contributions (NICs) and pensions required in April, May and June. From July, the government will introduce an employer contribution towards the cost of unworked hours of 10% in July, 20% in August and 20% in September, as the economy reopens.
This is relevant to trustees because the CJRS can impact the pensionable earnings upon which contributions and benefits are based.
- The government will maintain the Lifetime Allowance (LTA) at its current level of £1,073,100 until April 2026. In other words, more people could be impacted by the ceiling on tax relievable pension savings; especially those still lucky enough to have final salary pensions. Previous research suggests that the impact of the LTA has increased from circa 200 savers / £5m paid in tax to over 2,000 savers and £100m paid in tax between 2006 and 2018.
No changes were announced to the Annual Allowance on pension ‘inputs’ nor, surprisingly was there any mention of pension tax relief changes – not even for low earners in net pay schemes (although the outcome to a consultation on this issue is awaited).
- The band of savings income that is subject to the 0% starting tax rate will remain at its current level of £5,000 for 2021-22.
- The adult Individual Savings Account (ISA) annual subscription limit for 2021-22 will remain unchanged at £20,000.
- The annual subscription limit for Junior ISAs and Child Trust Funds for 2021-22 will remain unchanged at £9,000.
- The national living wage will increase to £8.91 an hour from April. This can impact eligibility for automatic enrolment into workplace pensions.
- The rate of Corporation Tax will increase from 19% to 25% from 2023.
Also, the government will consult within the next month on whether certain costs within the charge cap (currently set at a maximum of 75 basis points) affect pension schemes’ ability to invest in a broader range of assets. This is to ensure pension schemes are not discouraged from such investments and are able to offer the highest possible returns for savers. DWP will also come forward with draft regulations to make it easier for schemes to take up such opportunities within the charge cap by smoothing certain performance fees over a multi-year period.
Climate change and pension schemes was not mentioned in the Budget but, on the same day, the Pensions Minister set out a timetable for regulations under the Pension Schemes Act 2021 which includes measures to ensure pensions are safer, better and ‘greener’.
The Finance Bill will be published on 11 March.
From the perspective of pension scheme trustees, the Budget was, therefore, quite uneventful. Trustees should, though, consider any impact of the extension of the CJRS on their pension schemes, might want to alert members to the freezing of the LTA (noting that some HMRC protections – Fixed and Individual Protection 2016 – are still available) and should look out for the consultation on the charge cap and investments.