Quarterly Briefing Quarter 4 - 2021
Welcome to the fourth Pension Quarterly Briefing in which we provide information on a few significant events in the pension’s world.
The briefing is a supplement to the information contained on the Usdaw Pensions website, which contains a host of pension related information about workplace, personal and state pensions; www.usdaw.org.uk/Help-Advice/Pensions
So what happened in the fourth quarter of 2021?
1. Small Pots Consolidation
Auto enrolment (AE) was introduced in October 2012 it requires companies to opt in their qualifying employees into a workplace pension arrangement. According to the Office for National Statistics, 78 per cent of UK employees now have a workplace pension, compared to less than 50 per cent before AE was introduced.
However, frequent job changes have resulted in a large increase in the amount of small pension pots. There are believed to be over 3 million pots that are worth less than £100 and it is estimated that there will be over 27 million pots worth less than £2,000 by 2035 if no action is taken.
A "Small Pots Co-ordination Group", was set up by the Pensions and Lifetime Savings Association (PLSA) and the Association of British Insurers (ABI), to find solutions to this issue and published their first report at the end of September.
2. UK state pension to rise by 3.1% in 2022
The UK state pension is set to increase by 3.1% in 2022/23, in line with September’s Consumer Prices Index (CPI) inflation figure.
The Office for National Statistics (ONS) revealed that CPI inflation measured 3.1% in September 2021.
The state pension payment is protected by a “double lock”.
This means next April it would rise by whichever is higher out of September’s rate of inflation or a minimum of 2.5%.
The ‘triple lock’ which the Conservative party pledged to uphold in their 2019 General Election manifesto has been temporarily suspended because of ‘high earnings growth following the pandemic’.
UK state pension to rise by 3.1% in 2022 | Money Marketing
3. Pension Protection Fund in very good health
The Pension Protection Fund (the “lifeboat fund” for Defined Benefit pension schemes) has just published its latest annual report. Highlights include the fact that in the last year the PPF paid over £1bn in compensation and now has a funding level of 127%, with assets exceeding liabilities by over £9bn.
Protecting our members in uncertain times | Pension Protection Fund (ppf.co.uk)
4. Budget 2021: Government announces net pay tax relief top-up
Currently, some employees are not receiving the tax top-up known as “tax relief” from government, in their pension pots.
If you contribute via a relief at source arrangement, you will automatically receive a top-up at 20 per cent on your pension contributions (even if you do not pay or have a lower rate of income tax). In contrast, if you contribute via a net pay arrangement you will receive tax relief at your marginal rate, which for those with taxable earnings at or below the personal allowance (£12,570) is 0 per cent.
Individuals making pension contributions to net pay schemes who do not receive tax relief on their contributions will be eligible to claim a top-up from 2024-25.
See AUTUMN BUDGET AND SPENDING REVIEW 2021 – Section 5.34 Pensions tax relief administration: Top-up for low earners in Net Pay arrangements (page 142)
BUDGET 2021: Protecting the jobs and livelihoods of the British people (publishing.service.gov.uk)
5. Criminal offences policy
The Pensions Regulator (TPR) has published a policy on how it will use its new criminal powers to prosecute those who put savers’ pensions at risk.
The new criminal offences are "avoidance of employer debt" and "conduct risking accrued scheme benefits". In simple terms, the Regulator will prosecute a person if that person:
1. Carried out an act (which includes failing to act) that avoided an employer debt or risked accrued scheme benefits,
2. Knew that the act (or failure to act) would do this, and
3. Did not have a reasonable excuse.
Criminal powers policy and update to Code 12 published | The Pensions Regulator
6. Delay to simpler benefit statements
The Department of Work and Pensions (DWP) published a consultation document in May 2021 asking for comments on its suggestions for simpler benefit statements for defined contribution pension arrangements (used for auto-enrolment amongst other arrangments).
The DWP published its response to the consultation in October with the key change being a delay in the introduction of simpler statements until October 2022. The original target date was April 2022.
Government response: Simpler annual benefit pension statements (publishing.service.gov.uk)
If you have any questions or require information on any pension related matter please contact the Pensions Department at Usdaw; [email protected]