An Autumn (Statement) Chill in the Air

“We’re not heading for a recession” asserted George Osborne this lunchtime in the Treasury’s Autumn Statement for 2011. Reassuring news? But then he proceeded to paint a miserable economic picture for the UK for the next few years, with growth barely bumping along the bottom. And that’s if the plan actually works.

Public sector workers will be (understandably) outraged that their pay – frozen for the last two years – will be capped at 1% for the next two. And although Osborne made a last-ditch plea with the unions to call off tomorrow’s strike, you got the feeling it will fall on deaf ears. The low pay outlook will only make them cling on to their incredibly generous pensions even more.

But we got a reminder of the nation’s increasing longevity with the announcement that state pension age will rise to 67 between 2026 and 2028 – eight years earlier than the plans set out in the Pensions Act 2007 – saving the UK a staggering £59bn.

This rise in state pension age was not a complete surprise. But the announcement stopped there. You could have expected the Government to also outline the increase to age 68 by 2036 (instead of the planned 2046). But as it didn’t, more cynical minds might wonder if it just wants to keep that ace up its sleeve. And play a rise to 68 earlier than 2036 at another time. Maybe it’s time we stopped second guessing when Governments will make state pension age changes, and just put it into the hands of an permanent independent pensions commission to make alterations as and when, given rising UK and world longevity.

At least with this announcement, people have 15 years to plan. This should give them enough time to put in place their retirement plans to take account of the changes. We all – government, advisers, and providers - need to do more to make sure people know when their state pension age actually is. So many people are still assuming 65. And hopefully this will be tackled as part of the automatic enrolment communications plans next year.

Elsewhere in pensions, mercifully it was fairly quiet. Despite the perennial rumours to cut the amount of tax-free cash people can take, or to reduce tax relief (further) on pension contributions, neither announcement materialised.

Enterprise Investment Schemes were given a boost and now give more tax relief than pensions, reminding us all there are various ways to invest for the future. But as their scope is limited, and many people don’t understand them, it’s likely they will continue to be a niche investment.

Finally, the Government intends to introduce retrospective legislation to curtail the amount of tax relief given on employer asset-backed pension contributions. It appears some employers have been making asset contributions to plug holes in defined-benefit pension schemes and through a loophole claiming double the tax relief. Stopping this, HM Treasury reports, will save £500m. Which makes you wonder how widespread the practice was or how big the assets were!

But we still get back £500m in the UK purse – and let’s face it, we need every penny.