Navigating the impact of the new Budget on business and pensions

It was all about the budget and this was certainly a momentous budget from the new government. The substantial tax rises, public spending commitments and public borrowing numbers have had implications for business and will go a long way to define the course of the government’s time in office.  

The immediate consequences for most businesses and investors concern tax changes. The Chancellor unveiled a substantial number of tax increases totalling £40 billion, including increases in employer National Insurance (NI) contributions, increases to Capital Gains Tax, the removal of inheritance tax exemptions, as well as the pre-announced changes such as reforms to the non-dom tax regime and the removal of private schools’ VAT exemption.

Many DB schemes paid close attention to gilt prices following the Chancellor’s announcement of substantial increases in public borrowing. The announcement did prompt some market movement and an increase in gilt yields, but this has not, as yet, anywhere near the same level as Liz Truss’ ‘mini budget’ in 2022, which sparked the LDI crisis.

For the wider pensions industry, some of the rumoured measures that could have had a direct impact on the sector did not materialise. There was, for instance, no changes to lifetime allowance or to the tax-free lump sum that pensioners can take out. These lack of changes, however, do not mean that the government has put off any reforms for the sector.

The government does, of course, have substantial plans for how pension funds are invested, with the announcement of its pensions review to substantially increase the level of private sector investment in UK ‘productive finance’ (e.g. investment into infrastructure and the London stock market).

Speaking at the Pensions and Lifetime Savings Association (PLSA) conference earlier in the month, pensions minister Emma Reynolds thought there was “quite a lot of potential to drive further investment into the UK.” Yet, there has been a lot of concern from the industry and pension funds have warned that forcing them to invest in British assets to boost the domestic economy could backfire, potentially leading to lower returns for pensioners. Critics argue that mandating UK investments would push pension funds toward lower-quality assets, risking poor returns. While countries like Australia use tax incentives to encourage domestic investments, none of the top global pension systems mandate such allocations.

For now, we know that the first part of this pension review is focused on how DC and local government pension funds could be consolidated and mobilised for this purpose, while the government is also reviewing how surpluses in private sector DB schemes can be used. The Chancellor is expected to outline these measures in detail in her upcoming Mansion House speech on 14th November.

In other news, this month saw the UK introducing its first collective defined contribution (CDC) pension through Royal Mail, which aims to provide more stable retirement incomes and boost investment in UK private assets. Proponents argue CDC can handle more high-risk investments through "intergenerational risk-sharing," but critics say this is misleading, as CDC and defined contribution (DC) schemes face the same market risks without the flexibility DC offers for individual risk choices. This highlights that challenges remain with such a model

Moreover, Emma Reynolds, confirmed the government is “committed” to the current pensions dashboard connection timetable, with staging dates beginning in April 2025 and subject to an overall statutory connection deadline of 31 October 2026. From a survey of its members made before the announcement, the PLSA found that 90% of schemes were confident they will meet their connection deadline for regulatory compliance.

Total mentions by topic (September - October)

• Pensions funding and deficit saw the greatest number of mentions between August and September with 203 stories, followed by State Pensions with 72 stories.

Examples of Pensions funding and deficit mentions this month

• ​@KrisGibson13 - “In my view these women fell victim to a fundamentally sexist & archaic system'' @stevewebb1 the same system that failed to consider the rights of #50sWomen to be consulted, an impact assessment carried out & informed before being robbed of 6 yrs.
• @PaulLewisMoney - Not in public sector schemes (generally) but there are in all the others which would be affected. Advisers and fund managers would all lose some business and some work. That is the industry that is opposing the change.
• @Policy_Practice - We are delighted to announce the results of our Pension Credit take up campaign in partnership with the GLA and funded by @MayorofLondon The campaign has secured £17.9 million in unclaimed Pension Credit for older Londoners, which is a lifeline for pensioners on low incomes.