Budget 2012: Pension changes

Following the Chancellor’s announcement, Peter McDonald, pension partner at PwC in the North West, commented:

On no further changes to the pensions tax relief framework

"It's great pensions have been left alone.  Even speculation about changes in the run-up to the Budget was undermining confidence in pensions saving, causing some individuals to make snap judgements about their retirement plans.  What we really need to see is a stronger commitment from Government to a long-term stable framework for pensions tax, possibly supervised by an independent Commission, so pensions aren't always subject to short-term political interference."

On plans to introduce a new single-tier state pension:

"True simplification has to be good news for savers and pensioners.  Having a simple and clearer idea of what base level of state pension can be expected will be a good starting point for building their further savings on top of that.  However, expectations need to be realistic.  With the links between state pension age and life expectancy we can see the state pension age easily being 70 by 2050.  A newborn today may not expect to see their state pension til past age 75."

On plans to help pension schemes invest in infrastructure:

"This is an interesting trend and will help a limited number of pension schemes diversify their asset portfolio and returns while at the same time creating access to capital which can support the country's infrastructure needs.  However, it will not be the panacea the industry as a whole needs to escape from the crippling impact of historic low long-term yields.  At the scale envisaged, direct pension fund infrastructure investment will remain a minority sport for a small number of interested funds.  Even those funds involved will have to consider carefully the risk and return profile of these investments - not all infrastructure opportunities are the same and they will need to ensure they match the opportunities to their needs."

On plans to introduce longer-term and even perpetual gilts

"This could be a welcome development for pension fund sponsors and trustees alike.  Even closed schemes still have time horizons stretching out several decades into the future.  Current low gilt yields are creating artificial pressures for pension funding and investment management, and often painting a distorted picture of the true financial health of occupational pension schemes.  A new framework for gilts issuance may allow pension schemes to better assess their financial state against more meaningful objective benchmarks."

"It may also mean that whereas much of the pension buy-out industry has been focused on existing pensioner liabilities, opportunities may open up to buy out non-pensioner members on a more affordable basis." 

Contact details
Email: Peter McDonald
Tel: +44 (0)161 247 4567