Pensions are one of the most significant employee benefits affected by the Chancellor's Budget Report last month, says Nicola Sullivan

Chancellor George Osborne's Budget Report contained a number of measures affecting benefits, notably pensions.
One of the most significant changes was the introduction of a flat-rate, single-tier state pension.

Martyn Cross, a director at Smith and Williamson, said that when compared with the basic state pension of £102.15 a week, a single-tier pension set above means-tested benefits at about £140 a week sounded very positive, but it remained unclear how people in the second state pension and the state earnings-related pension scheme (Serps) would be treated.

"What [the Chancellor] did not put as much emphasis on is that a lot of people who have been employed qualify for the state second pension or Serps, and that could be another £133 a week," he said. "So if you are going from £235 a week down to £140 a week, that does not sound so good."

But Tony Baily, head of Aon Hewitt's pension tax team, said a single-tier state pension would probably mean the end of contracting out for defined benefit (DB) schemes. This is when the additional state pension is covered by the DB scheme, and both the employee and employer pay reduced rate national insurance contributions (NIC).

Baily said this would lead to further DB scheme closures. "[Fewer] employers want [DB schemes] now, and more are looking to close them. This could be an excuse for employers to say to members, 'it is not us, it is the government that has increased the costs and we are now going to defined contribution for future service'."

On a more positive note, the government's commitment to increasing the personal tax allowance to £9,205 by April 2013 could reduce the costs associated with auto-enrolment. Aon Hewitt estimates the change could take about one million people out of the tax system, and therefore out of auto-enrolment, which could save employers around £100 million in pension contributions.

The delay to auto-enrolment staging dates for employers with fewer than 50 staff is forecast to save the government £380 million in reduced tax relief on pension contributions by 2017.

It was also announced that age-related allowances will be frozen with a view to eventually aligning them with personal allowances. In some cases, this could mean that employees who continue to work after state pension age could pay more tax. Employers with workers falling into this group should communicate this to them.

The government also plans to ensure the state pension age rises in future take increases in life expectancy into account. Its plans will appear at the same time as the Office for Budget Responsibility's 2012 Fiscal sustainability report this summer. Steve Herbert, head of employee benefits strategy at Jelf Employee Benefits, said: "The default retirement age was scrapped, so many staff will continue in work until, and if, they can afford to retire."

The government also plans to legislate in the Finance Bill 2013 to ensure arrangements whereby an employer pays a pension contribution into a registered scheme for an employee's spouse or family member, as part of their flexible remuneration package, cannot be used to obtain tax and NIC advantages for the employee or employer. This is aimed at preventing plans being used to circumvent annual and lifetime allowances for contributions.

Other announcements in the Budget included:
• A government review of employee share ownership and double grant limit on EMI schemes.
• A review on differentiated regional public sector pay.
• A government consultation on integrating income tax and NI in April.
• The 50p tax rate to be reduced to 45p.

To find out more about how the Budget impacts benefits