Pensions and investments

Consultation on further changes to DC charges

The government has announced that it will consult later this year on further changes to the charge cap that applies to defined contribution auto-enrolment pension schemes.

The consultation will consider amendments to the scope of the cap to better accommodate performance fees, which in turn should remove a key barrier to defined contribution pension schemes investing in illiquid assets (also known as "productive finance"), including through the new UK Long Term Asset Fund vehicle.

Further details on the proposals for the Long Term Asset Fund, and Simmons & Simmons response, can be found in our article, LTAF - Coming Soon. Final rules in force from 15 November 2021.

State pension uprating

The government will suspend the earnings element of the “Triple Lock” for State Pension uprating next year, meaning that for 2022/23 State Pension will only be “Double Locked” – and increased by the higher of CPI and 2.5%.

The suspension of the earnings element of “Triple Lock” is designed to avoid an unintended windfall benefit for pensioners driven by a distortion in earnings data resulting from the pandemic.

Top-up payments for low-earning individuals from 2025

The government will increase income tax relief on pension contributions for certain lower earners in the 2025/26 tax year, for contributions made the previous tax year.

The background is that there are two main ways for individuals to receive income tax relief on pension contributions:

• net pay arrangements (NPA) – an individual receives tax relief when pension contributions are taken out of their pay by their employer before tax is calculated, or
• relief at source (RAS) – a pension scheme claims tax relief at the relevant basic rate from HMRC because individuals make pension contributions out of their earnings after tax has been calculated. Individuals who pay tax at rates higher than the basic rate can claim any extra relief directly from HMRC.

The issue is that those who pay little, or no, income tax still receive a 20% top-up to their pension contributions under a RAS scheme. Those contributing to a NPA scheme, however, only receive tax relief at their marginal rate – which can be as low as 0%.

The government therefore proposes to pay a top-up from the 2025/26 tax year to those in NPA schemes – and estimates that this will benefit 1.2 million pension savers by an average of around £53 a year.

ISAs

The ISA annual subscription limit for 2022/23 will remain unchanged at £20,000. The annual subscription limit for Junior ISAs and Child Trust Funds for 2022/23 will also remain unchanged at £9,000. The same annual limit applies to Child Trust Funds.