Philip Hammond's financial update was empty of any direct pensions impacts as the Chancellor sought to trim down the fiscal statement, writes James Phillips
His first Spring Statement, delivered today, contained no pensions announcements. Instead, he focused largely on the broader macro-economic picture, as well as providing updates and confirmations of previous policy announcements.
However, projections that real wage growth will be positive this year, plus the £350 increase in the personal tax allowance, will help to alleviate concerns that auto-enrolment (AE) opt-out rates will soar when contribution rates rise next month.
The additional take-home pay for the average saver will go some way to mitigate the rise in employee contributions from 1% to up to 3%.
For example, while a £20,000 earner could see contributions rise to £9.42 per month to £27.94 net of tax relief, the increase in the personal tax allowance will reduce tax payments by £5.83. A further £2.60 will be gained from a raising of the National Insurance primary threshold, resulting in a net decrease in take-home pay of £10.09 before real-wage growth is factored in.
For someone earning an average salary of £26,500, monthly contributions could rise from £13.75 net of tax relief to £41.25, while the personal tax allowance and NI threshold increases will also result in a £19.07 decrease in take home pay.
Closed defined benefit (DB) schemes are also likely to see improvements in their funding position ahead if the revised inflation forecast comes into fruition.
The Office for Budget Responsibility has estimated Consumer Prices Index (CPI) will return to 2% this year, dampening prospects of potential growth of DB liabilities. However, open DB schemes may see some of this offset if real wages do return positive, pushing up liabilities.
Aegon pensions director Steven Cameron commented: "There could be implications for final salary pension scheme funding which is impacted positively by lower price inflation but negatively by higher earnings growth for members who are still building up benefits."
All-day event on 24 April
Consequences could be more severe than in stress tests
AFH has six segregated mandate funds
Variable operating expenses