Hewitt Associates, a global human resources consulting and outsourcing company, has commented on the measures announced in the Chancellor of the Exchequer's emergency Budget today.

Overall comment
Colin Robertson, Global Head of Asset Allocation at Hewitt Associates, said:

"The financial markets should like today's Budget. Budget deficit projections are lower than expected and, more generally, the City will appreciate the dominant philosophy. Risks lie in the GDP growth forecasts beyond the current year, especially given the greater than expected spending cuts. However, this does not change our asset allocation views: gilts still look very expensive and the UK quoted equity market is very global in nature.

"Of course, at the macro level the combination of the change in pensions taxation and the absence of CGT tapering/indexation will discourage long term savings."

On pension changes
Tony Baily, principal consultant at Hewitt Associates, said:

"Hewitt welcomes the Government's aim of simplicity for pension taxation. The Government has listened to industry views for adapting the existing annual and lifetime allowance rather than introducing a complex new structure.

"The Government has suggested a range of £30,000 to £45,000 for the annual allowance. Hewitt believes that to raise the required £3.5bn, the annual allowance will need to be at the lower end of this range, perhaps £35,000, especially if basic rate tax payers are to be protected."

Tony Baily continued:

"For many people, saving about £45,000 in pension and ISA will be sufficient to provide most of their savings in a tax efficient environment. We believe that this might encourage employers to provide integrated savings vehicles for employees.

Lynda Whitney, pensions consultant at Hewitt, said:

"There is still significant uncertainty. Given it is only nine months until the changes are applied, questions around how the tax will be calculated and collected need to be swiftly resolved.  The highest earners will be relieved that they can continue to make some tax efficient pension savings but this is at the expense of lower earners who are nonetheless still higher rate tax payers. The main losers will be older, long-serving DB members with income of less than £130,000."

On tax efficient pension saving
Tony Baily, principal consultant at Hewitt, said:

"The Government has confirmed that they are reviewing whether employer-financed retirement benefit schemes (EFRBS) are tax avoidance vehicles and bringing inheritance tax on trusts into the Disclosure of Tax Avoidance Schemes regime. This continues the uncertainty around tax efficient alternatives for pensions for higher earners."

On CPI vs RPI 
Lynda Whitney, pensions consultant, said:

"The linkage of public sector pensions to CPI rather than RPI may sound innocuous.  However, it is a fundamental change and over the last six years CPI increases have on average been 0.5% a year lower than RPI increases.  It will also be interesting to see if CPI starts to be used elsewhere in pensions legislation or as the index for index-linked bond issuance."

On the implications for Salary Sacrifice
Martin Laws, principal consultant at Hewitt, said:

"We were relieved to see no moves to quash Salary Sacrifice schemes. They could still be more beneficial for some individuals who are on the thresholds for  benefits - especially given that National Insurance Contributions rates are due to go up next Spring."

On changes to Capital Gains Tax 
Neil Sharpe, principal consultant at Hewitt New Bridge Street, said:

"The increase in the rate of capital gains tax (CGT) for higher rate and additional rate taxpayers is not as high as expected and means that it may still be advantageous to structure executive share incentive awards to fall within the CGT regime rather than the income tax regime as the relative differential between the tax rates remains high.  

"It is also good news for employees in all-employee approved share plans, such as Sharesave, that the CGT rate for basic rate taxpayers remains at 18% and the annual tax free amount remains at £10,100. For many of these employees, all their gains from these plans will remain tax-free."

About Hewitt Associates
Hewitt Associates (NYSE: HEW) provides leading organisations around the world with expert human resources consulting and outsourcing solutions to help them anticipate and solve their most complex benefits, talent, and related financial challenges. Hewitt works with companies to design, implement, communicate, and administer a wide range of human resources, retirement, investment management, health care, compensation, and talent management strategies. With a history of exceptional client service since 1940, Hewitt has offices in more than 30 countries and employs approximately 23,000 associates who are helping make the world a better place to work. For more information, please visitwww.hewitt.com.