LONDON (16 March 2016) – Aon plc (NYSE:AON), has commented on today’s UK Budget Speech.
On the Lifetime ISA
Lynda Whitney, partner at Aon Hewitt, said:
“The Chancellor’s announcements on pension issues look like unfinished business. A number of the key issues raised in the pensions tax consultation have not been decided, but deferred. The new Lifetime ISA may be welcome, but it could well be the Trojan Horse that kills off pensions at a later stage.
“The Lifetime ISA is to be welcomed as it addresses the need to engage with young people to save for the future. However we fear the mixing of shorter term saving for house purchase, with longer term saving for pensions. Will individuals invest in low risk assets, focusing on protecting the capital value, and so ignore the need to take enough risk to generate returns for a long-term investment like pensions?”
Kevin Wesbroom, senior partner at Aon Hewitt, said
“The reaction of employers will be fascinating, and we can identify significantly different responses. Some will want to extend their benefits package to contribute to Lifetime ISAs as part of their employment package, to appeal to their younger workforce. Leading employers might want to offer a savings allowance that could be diverted to pensions or Lifetime ISA as decided by the member. Other employers will withdraw from pensions and just contribute the Auto Enrolment minimum – they will welcome wholesale opting out of pensions to fund Lifetime ISAs instead. We hope they will not be charged with inducing their employees to opt out!
“Lifetime ISAs will represent the better saving option for many low paid employees. For others the decision may be less clear cut and these members may decide they need financial education – paid by the employer, using the new increased allowance - to help them decide whether they are better off in pensions or a Lifetime ISA.”
On Public Sector pension schemes
Tim Lunn, partner Aon Hewitt:
“Reducing the discount rate on public sector pensions to 2.8% above CPI will increase contributions to unfunded public sector schemes. This increase could be significant for employers participating in these schemes.
“The move to Academy schools will also have a significant impact on local government pension schemes where Local Education Authorities will see further maturing in their liability profiles as schools convert to academies. This may have a range of implications for the relevant councils in relation to funding and investment strategy.”
Debbie Falvey, DC Proposition Leader at Aon Employee Benefits, said:
“It’s good news that Chancellor has agreed to implement the Financial Advice Market Review (FAMR) recommendations on the provision and funding methods for financial advice. The raft of changes already in play, pension freedoms, LTA and AA limit changes have massively increased the demand for financial advice - and that was before today’s announcements. The Pension Advice allowance will be a useful way to remove one to the key barriers to seeking advice - people don’t want to write the cheque.
“Simplifying the rules on advice and regulatory uncertainty will be important in encouraging the development of advice services whether that is robo-advice or more traditional offers.”
On Salary Sacrifice
Jeff Fox, principal consultant, Aon Employee Benefits said:
“The update in the Budget has not moved on since the Autumn Statement. We already know that the Government is looking at salary sacrifice and they have it on their radar. However, they are specifically intending salary sacrifice to continue for pensions, childcare and bikes to work, some of the most popular arrangements. So at this time it is business as usual on salary sacrifice.”
For further information please contact:
Colin Mayes Marina Jane-Sanchez
Aon Hewitt CNC
01372 733689 020 3219 8811
Notes to Editors
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