Budget 2021 update

08 April 2021

In the days running up to the Chancellor’s second budget speech on 3 March 2021, there had been the now customary talk of a major overhaul of the tax treatment of pensions but, once again, this failed to materialise. In reality, the only change was the freezing of the standard Lifetime Allowance (LTA) at its current level of £1,073,100 for the tax years 2021/22 up to and including 2025/26. This change has been achieved by removing the link to the increase in the Consumer Prices Index.

Some other items of note were:

• The Government is to legislate to ensure that collective money purchase pension schemes (also known as collective defined contribution schemes), to be introduced by the Pension Schemes Act 2021, can operate as registered pension schemes for tax purposes;
• The Government will consult on whether certain costs within the charge cap affect defined contribution pension schemes’ ability to invest in a broader range of assets. (Broadly speaking the Charge Cap is the limit on charges which can be passed on to members.) This is to ensure pension schemes are not discouraged from such investments and are able to offer the highest possible returns for savers. DWP will also come forward with draft regulations to make it easier for schemes to take up such opportunities within the charge cap by smoothing certain performance fees over a multi-year period;
• As part of its ‘Build Back Better’ plan, the Government is looking to support access to finance to help “unleash innovation”, including through reforms to address disincentives for pension funds to invest in high-growth companies (as already mentioned above in relation to the charge cap). The plan notes that there remains “a largely untapped pool of capital from institutional investors”, particularly defined contribution pension schemes; and
• The Government will issue its first sovereign green bond – or green gilt – this summer, with a further issuance to follow later in 2021 as the UK looks to build out a ‘green curve’. Green gilt issuance for the financial year will total a minimum of £15 billion. The green gilt framework, to be published in June 2021, will detail the types of expenditures that will be financed to help meet the Government’s green objectives. The Government also commits to reporting the contributions of green gilt spending towards social benefits such as job creation and levelling up.