This year has seen monumental changes to employment law and employer/employee relations. For instance, we saw the introduction of the furlough scheme, completely new to employment law, which meant the government handed out billions of pounds to organisations in grants. With government support for the UK economy due to continue until the end of April 2020, the UK government is under immense financial pressures from the Covid-19 (Coronavirus) crisis and this is likely to herald steps to bring in revenue.
Could tax relief to pensions take a hit?
There is likely to be a crackdown by HM Revenue and Customs (HMRC) to claw back money paid out unnecessarily under the furlough scheme. HM Treasury will also likely look at other sources of additional revenue. This is where the spotlight could shine on pensions. In particular, tax reliefs given to pension savings are a potential target, undesirable as this may be from a pensions standpoint.
Having relaxed the tapering relief provisions for high earners only last spring, it seems unlikely that the government will now go back on those changes, but it might revisit the question of restricting tax relief on individuals’ pension contributions to the basic rate of income tax. This may be more attractive to the government than taxes which hit taxpayers’ pockets directly.
However, the government might not wish to be seen to be discouraging pensions saving. As the pandemic has affected many household incomes, employers may find that a notable number of employees have opted out of workplace pensions or reduced their contributions this year. While this may not be of immediate concern to employers and pension trustees, it could signal a wider issue in the future if this is more than just a short-term trend.
Environmental, social and governance (ESG) considerations have been on the radar of pension trustees for several years. While ESG obligations apply to almost every sector of the UK economy, pension schemes are directly in the firing line, as far as the government is concerned, in trying to ensure society takes greater responsibility for ESG matters.
Pension trustees are legally obliged to take account of financially material ESG considerations, including climate change, in setting their investment strategies. Guy Opperman, the pensions minister, has highlighted the need for schemes to have more regard to the risks and opportunities from climate change, in particular, by pressing their investment managers on how they address this issue.
This pressure on schemes will only increase in 2021, with the obligation on pension trustees to disclose their statements of investment principles on a publically available website and given that the UK is due to host the next UN Climate Change Conference in Glasgow in November.
Jeremy Harris is a pensions lawyer at Fieldfisher.