Pension Tax Changes Survey Summer Budget 2015

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1 Pension Tax Changes Survey Summer Budget 2015 December 2015

This means that we are able to provide you with a comprehensive overview of the market reaction to the recently announced pension changes.

2 Foreword Pension Tax Changes Survey Foreword Philip Smith Thank you for taking the time to participate in our Pension Tax Changes Survey. We received a large number of responses covering many industry sectors and sizes of organisation, from FTSE100 companies to SMEs and owner managed businesses. This means that we are able to provide you with a comprehensive overview of the market reaction to the recently announced pension changes. Pensions remain a central part of an individual s remuneration package and at the heart of their retirement planning. However, since A-day in April 2006 and the introduction of the Lifetime and Annual Allowances, UK pensions have been anything but simple. The last 10 years have seen no less than 14 changes to the pension tax regime, and the most recent ones announced on 8th July 2015, which will see further reductions in the Lifetime Allowance and the introduction of the tapered Annual Allowance, bring new challenges. Between now and April 2016 employers will need to ensure that employees affected by these changes understand the impact on their retirement planning and are able to act. Most respondents to our survey will be adjusting their reward package to reflect the new tax environment whilst recognising that further change may be as little as four months away. We should not rule out further wholesale change once the Government has had a chance to consider responses to its latest consultation on simplifying pension tax. The results of the survey provide you with insight into the recent thinking following Summer Budget 2015 and how our clients are navigating through the new pension landscape. Philip Smith PwC Please feel free to contact your PwC team or alternatively any of the following: Philip Smith Director Phillippa O Connor Partner Kate Harris Director Ben Wilkins Partner T: +44 (0) M: +44 (0) E: philip.a.smith@uk.pwc.com T: +44 (0) M: +44 (0) E: phillippa.o.connor@uk.pwc.com T: +44 (0) M: +44(0) E: kate.harris@uk.pwc.com T: +44 (0) M: +44(0) E: ben.wilkins@uk.pwc.com Survey undertaken in November responses. 2 Summer Budget 2015 PwC

3 Perceived impact of Summer Budget 2015 Status of the general decision making Policy confirmed 2% have communicated their policy to employees 11% Respondents who have not yet considered Organisations who are gathering information or considering their policy Respondents who have confirmed their policy 50% Policy options considered, but decision not yet confirmed 43% 55% 50% Gathering information to determine policy 34% 5% have not yet considered the impact of Summer Budget It s not really a big issue we can manage informally Our higher earners will have problems building up retirement savings We will change our reward strategy for higher earners PwC Summer Budget

4 Defined benefit pension schemes Decision made regarding DB pension schemes which are open to accrual 50% are in discussion about offering a cash allowance to members affected by the pension tax changes Status of DB scheme Closed to accrual 4 Open to new entrants and accrual 52% have decided to alert members in advance to the possibility of exceeding the Annual Allowance/Lifetime Allowance 21 28% have yet to consider offering flexible accrual to avoid an Annual Allowance breach 9% have decided not to make any changes to their pension scheme 43 30% are in discussion about closing their pension scheme to future accrual Closed to new entrants and open to accrual Methodology for calculating the cash allowance 67% of respondents with DB schemes who are offering a cash allowance, have made a decision about how to calculate the allowance for affected members of these respondents have decided to calculate the cash offer based on the scheme funding rate for new benefit accrual 1/3 50% are considering whether to adjust for employer s National Insurance. 13% have taken the decision to adjust the cash supplement 4 Summer Budget 2015 PwC

5 Defined contribution pension schemes Decision made regarding DC pension schemes 51% 18% 6% 42% 32% are in discussion about offering a cash allowance to members affected by the pension tax changes have decided to restrict contributions to avoid an Annual Allowance breach of respondents have decided not to make any changes to their pension regime are considering restricting contributions to avoid an Annual Allowance breach with DB and DC schemes have confirmed their decision to offer a cash allowance to affected members, compared to 13% with DC schemes only Type of pension arrangements 54% DC and DB schemes DC schemes only 46% Methodology for calculating the cash allowance 76% of respondents who have made a decision to offer a cash allowance, have confirmed their methodology for calculating the allowance for affected members of these respondents have decided to calculate the cash offer based upon core employer contributions only 3/5 60% are considering whether to adjust for employer s National Insurance. 21% have taken the decision to adjust the cash supplement PwC Summer Budget

6 Engagement, communication and alternative saving vehicles Member engagement and communications Alternative saving vehicles and life insurance 61% of employers have not yet made a decision about their approach to communicating pension tax changes The most popular alternative savings vehicle being considered is a Corporate ISA 26% considering alternative vehicles are discussing ISA s as an option. A further 5% have decided to proceed 19% have decided to provide group presentations For employers with over 1,000 employees 43% confirmed they would issue generic communications to every employee 14% 8% have decided to send personalised communications have decided to provide an employee helpline For smaller organisations 20% will provide access to group presentations or surgeries at the workplace Over 60% 12% are considering some form of matched savings arrangement have not yet considered other options such as group share plans, other forms of matched savings (e.g. unit trusts) and bespoke deferral vehicles (e.g. unfunded benefits) 3% have decided to offer a group share plan to their executives only 14% have decided not to implement a specialist deferral arrangement Excepted life insurance is the most popular option that has been considered 32% will provide group presentations or surgeries at the workplace 40% are considering providing employer sponsored 1:1 personal guidance or advice 30% have made the decision to implement an excepted life policy whilst a further 15% are in discussion Due to multiple responses, figures do not add to 100%. 6 Summer Budget 2015 PwC

7 Future policy, compliance and administration Future policy Compliance and legal Payroll and administration 70% will continue to provide retirement plans above autoenrolment minima 22% are gathering information to help decide whether contracts of employment will need to be amended 72% are worried about the administrative complexity of the changes 47% are introducing changes to the overall role of retirement savings in wider reward policy 23% are considering whether they should consult with existing employees about changing their contracts 65% agree or somewhat agree that their internal pension and payroll teams need training on the issues 28% are thinking about introducing changes to provide wider workforce savings arrangements 25% have confirmed they do not need to review their auto enrolment processes 55% agree that it will add cost to their payroll and pension processes 30% 65% of larger organisations are considering or making changes to their employee financial fitness/wellness programmes of larger organisations are consulting or considering consulting with their remuneration committee have engaged with their 45% Trustees PwC Summer Budget

8 Summary and contacts Impact of the pension tax changes There is uncertainty as to how to respond to Summer Budget Most organisations are still gathering information or debating policy Over 50% of respondents agree that their will be additional costs for them in respect of payroll and administration processes. Respondents with both DB and DC pension schemes are further forward in their decision making, than those with just a DC scheme. There is significant concern in relation to how the changes will be administered, and nearly 2/3rds of respondents noted that training will be required for their internal pension and payroll employees. A cash allowance is the favoured option for those who have made a decision. Corporate ISAs are the most popular alternative workplace savings vehicle. Generally the pension tax changes will not affect how companies currently fund retirement for the majority of employees. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see for further details RP-OS

Workplace Lawyers Delivering Workplace Solutions. Budget 2016 PENSION TAX CHANGES

Workplace Lawyers Delivering Workplace Solutions Budget 2016 PENSION TAX CHANGES 2 PENSION TAX CHANGES What are the changes? With effect from 6 April 2016, there will be further changes to the rules on