Pension funds primed to invest in innovation

The Chancellor is setting out a new action plan to support innovative UK firms with £20 billion of investment over the next 10 years, with pension funds encouraged to be major investors.

To help tap into the “natural supply of patient capital” that pension funds can be, the Budget proposes that:

• The Pensions Regulator will clarify guidance on how trustees can include investment in assets with long-term investment horizons (eg venture capital, infrastructure and other illiquid assets) in a diversified portfolio; and
• The Treasury will establish a working group to investigate ways of removing the barriers currently preventing some DC pension savers from investing in illiquid assets

Comment

There are competing and conflicting aims for DB pension scheme trustees here.  On the one hand DB pensions are ideally placed to invest in some long-term projects with the possibility of excellent investment returns.  On the other, they have been encouraged for a long time (by the Pensions Regulator amongst others) to invest in “safer” assets such as Government bonds.

A few years ago the Regulator was asked to change its focus slightly, from an almost completely “pensioner protection” emphasis to one incorporating a new objective of minimising any adverse impact on the sustainable growth of employers.  It will be interesting to see whether the proposed guidance on investing in “riskier” long-term innovation firms moves the Regulator further away from its original protection messages.

And now for the rest

Amongst the other announcements are the following:

• Lifetime allowance – as expected, the standard LTA for registered pension schemes will increase in line with the CPI, rising to £1.03m for 2018/19
• Life assurance and overseas pension schemes – from April 2019, tax relief for employer premiums paid into life assurance products or certain overseas pension schemes will be modernised to also cover policies where an employee nominates an individual or registered charity to be their beneficiary
• State Pension and Pension Credit – in April 2018 the Basic State Pension will rise in line with the CPI (3%) as this is highest element of the triple lock this year. This will take the full Basic State Pension up by £3.65 per week to £125.95 per week.  The full new State Pension will also be increased in the same manner – and so up by £4.80 per week to £164.35 per week
• Income tax thresholds – the income tax personal allowance will be increased from £11,500 to £11,850 and the higher rate threshold from £45,000 to £46,350, in both cases from 6 April 2018. The Upper Earnings Limit used for national insurance contributions is expected to increase to remain aligned with the higher rate threshold

There was no announcement about the annual allowance and so the full rate for this will remain at £40,000 in 2018/19, with the high income taper unaltered.  The money purchase annual allowance will remain at £4,000 for 2018/19.

This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law.  For further help, please contact David Everett at our London office or the partner who normally advises you.