Trustees and managers of defined contribution schemes should prepare to act quickly if there are tax changes in this month’s Budget, according to Hymans Robertson.
While they should not pre-empt any changes before the chancellor’s announcement on 30 October, the consultancy group said schemes should be ready to support employers and members if there are any changes that affect pension schemes.
Hymans highlighted five possible areas where tax changes could pose challenges and how defined contribution (DC) schemes could prepare.
Reports have emerged this week that Rachel Reeves is considering changes to National Insurance contributions from employers. This could push costs up for employers, so schemes should be prepared to review contribution structures and costs.
While it has been widely reported that tax relief on pension contributions will likely not be changed, Hymans said schemes should still be aware of the impact of any change, particularly on higher earners.
Other rumours have centred on the treatment of tax-free allowances when pensions are first taken out, as well as how pensions are treated for inheritance tax purposes. Schemes should be ready to review investment strategies and administration arrangements, Hymans said.
Finally, the consultancy said schemes should be on the lookout for opportunities if the government introduces tax incentives for UK investments.
Hannah English, head of DC corporate consulting at Hymans Robertson, said: “While we do not recommend that employers make changes before the Budget is announced, we strongly recommend that they start to consider now what the budget may mean for them and their employees. This will enable them to act quickly once the announcement is made on 30 October.
“Some of the changes... could have a direct impact on the efficiency of pensions savings. This, coupled with the complex nature of pensions, could result in some savers becoming more susceptible to scams or making illogical pension decisions.
“As an antidote to this, we advise that firms review and update any communications to their members. They should ensure they are kept up to date in the run up to, and on, Budget Day of possible changes – but encouraged not to take knee-jerk decisions now in anticipation of a change that could not come.”
Modelling tools could help both employers and savers understand how changes could affect them, English said.
She added: “As the old saying goes, failing to prepare is preparing to fail – and nowhere is this more pertinent than on Budget Day.”
