Spring Budget 2024

Commenting on the Chancellor’s cut to employee National Insurance Contributions (NIC), Susan Waites, Partner, Hymans Robertson, said:

“The widely trailed 2% reduction in employee National Insurance Contributions (NICs) announced in the Spring Budget will provide a welcome boost to take home pay from April. An individual earning £35k will be £448 a year better off. It does however further erode the savings an employee makes by sacrificing pay for pension contributions, which cuts across Government intentions and industry efforts to incentivise employees to pay much more into their workplace pensions.”

Hymans Robertson has calculated that, for a basic rate taxpayer per £100 sacrificed into pension:

• before last NIC cut – cost to employee £68 (NIC saving is £12)
• after NIC cut to 10% – cost to employee £70 (NIC saving is £10)
• after NIC cut to 8% – cost to employee £72 (NIC saving is £8).

“Employer NIC saving on pay sacrificed throughout is £13.80. Some employers choose to pay some or all of their NIC saving into employees’ pensions. In light of the widening gap between the amount of NIC saved by employers and their employees, we would encourage employers that don’t currently share their NIC savings to consider doing so.

“NIC savings on other popular employee benefits like cycle to work, electric cars and tech schemes will also reduce. So for employees making use of multiple salary sacrifice schemes, the latest cut in NICs may not boost their take home pay by as much as they expect.”

Commenting on plans to launch a British ISA, Julie Hammerton, Partner and Head of Hymans Robertson Personal Wealth, said:

"The introduction of a British ISA is unlikely to be a meaningful way to fulfil the policy objective of boosting UK growth. While it’s great to see a long-overdue rise to the ISA allowance, encouraging people to save more in a tax efficient way, stipulating that the extra £5,000 goes towards a British ISA has the potential to be at odds with the old saying "don't put too many eggs in the one basket". A key tenet of investing is diversification. Investing across different countries is a way to reduce investment risk by avoiding excessive concentration in any one market.

“Putting money into an ISA (along with saving into a pension) is one of the first steps many will take into the world of investing. Whether an ISA focussed on UK businesses will be right for a retail investor very much depends on their existing savings, their attitude to risk and capacity for loss.

“Most people, unless they speak to a regulated adviser, won't be able to assess this for themselves. If someone takes on more investment risk through geographical concentration and that goes against them, that could dent their confidence and impact their willingness to invest savings in the future.

“This could be a potential fault line between the FCA and the government, given the FCA’s duty to protect retail investors and to promote an environment where they can achieve good outcomes. It will be interesting to see the outcome of the consultation, particularly in respect of the safeguards that will be put in place for retail investors.”

Commenting on take up on the existing six ISA vehicles, Julie Hammerton added:

“If you were designing the ISA regime from scratch, you wouldn't have six different types of ISA, and certainly not seven. The majority if ISA money goes into cash ISAs and stocks and shares ISA, with much less contributed to other options. If we take the Innovative Finance ISA as an example, of the 12m people investing in ISAs in the UK, only 12,000 invest in this.”

Commenting on the Chancellor’s proposals to make pension funds to reveal more about their investments, Alison Leslie, Head of DC Investment, Hymans Robertson, said:

“The Chancellor’s initiative to disclose investment within the UK is aligned to the Mansion House reforms. The FCA will be concerned that this disclosure may lead to an expectation that more be invested in UK assets where potentially the investment case for doing so doesn’t stack up. There is a friction here potentially between the ambitions of Mansion House and the FCA’s duty to make sure initiatives protect members and the market framework.

“Return drivers are the key consideration of asset allocation decisions alongside diversification and risk management. If the investment case stacks up recommendations will be made to invest in the UK. Many argue however that the case for significant investment in the UK does not currently exist.

“The announcement on benchmarking against other schemes is not unexpected particularly against the largest >£10bn plus in assets. This will drive consolidation in the market. However, consideration still needs to be given to those schemes where, due to structure, it is and has been difficult if not impossible to move, for example those with GMP underpins. A solution to that has not yet presented itself and this remains a big problem.

“We look forward to the consultation to understand better how the Chancellor envisages various aspects of the measures will work.”

Commenting on announcements in today’s budget Iain Campbell, Head of LGPS Investment, Hymans Robertson said:

“There were two developments for the LGPS in today's budget, covering disclosure requirements and the potential to provide funding for the provision of more children's homes.

“The new disclosure requirements for the LGPS mentioned in today's Budget do not come as a huge surprise, given last year's consultation indicated a vast range of reporting requirements would be brought in for the LGPS. What has raised some eyebrows, however, is the focus on UK equities. This appears to be another shift in the government's wording around the role they wish UK pension funds to play in supporting the UK economy. Previously, the focus has been on "venture and growth capital" and "productive finance", so further clarity will be needed on what exactly, will be defined as UK equities, and whether this is just one of a number of UK asset classes that will need to be reported on.

“It was also surprising to see the government state that stricter rules may be brought in if the reporting requirements do not lead to increased investments in UK equity. Great efforts have been made to diversify investments globally, opening up a larger investment opportunity set, and any reversal of this could well create a challenge to fiduciary duty.

“With regards to the potential for the LGPS to help with funding for building more children's homes, this was again somewhat of a surprise. It can only be presumed that it ties in with the government's Levelling Up agenda, albeit it on a somewhat more focussed issue. Given the purpose of the LGPS and the fiduciary duty of pensions committees, this must be done in a way that stacks up financially for the LGPS - the risk-adjusted returns must be acceptable, and the governance requirements cannot be too burdensome. We must always remember that the LGPS is there to pay benefits, not to make up government spending shortfalls.”

Commenting on today’s Spring Budget, William Marshall, Chief Investment Officer, Hymans Robertson Investment Services (HRIS) says:

“On the government’s introduction of a new UK ISA, any additional tax breaks that incentivises investment is a good thing. However, there is a risk that investors will allocate a larger than optimal exposure to UK assets. Portfolios should be diversified globally to help. Investors will now need to weigh up whether the additional tax incentives compensate for the reduced regional diversification. It is also yet to be determined how the government will define UK assets eligible for inclusion in a UK ISA. For example, there are plenty of foreign companies that are listed on the London Stock Exchange and therefore are included in the FTSE 100 index. Conversely, Arm Holdings, a British semiconductor firm, is listed on the Nasdaq in the US so may be ineligible, even though this is exactly the kind of company that the Chancellor would like to receive investment.”

Commenting on the pre-budget announcement from HM Treasury that ESG ratings providers will be regulated, Simon Jones, Head of Responsible Investment says:

“External ESG ratings have been a useful tool for communicating issues relating to ESG, but there are issues in how they have been perceived. The fact that they reflect the internal management of ESG risks often being conflated with an assessment of the external impact that a company may have. Coupled with the fact that there are often discrepancies in ratings, this could lead to a lack of trust. However, our experience has been that, although there are products that make direct use of ESG ratings as a basis for capital allocation, it’s the underlying data that provides an input to the ratings process that can often be more valuable. Using this information product providers have often created bespoke methodologies drawing on multiple insights and data sources to develop product.

“Regulation of ESG ratings providers will be helpful if it promotes ideas around transparency and consistency. However, it wouldn’t be wise to extend this regulation to those using ESG data solely for the purposes of creating investment products.”

Commenting on the lifetime provide model (‘pot for life’), Paul Waters, Head of DC Markets, Hymans Robertson, said:

“Although it’s good that the Government has issued an update on the lifetime provide model, (‘pot for life’), there are a number of other initiatives in play to tackle our fragmented pensions system, such as consolidation and the pensions dashboard, which should be given time to deliver first, before pot for life. Only then will we know if we’re tackling the right problem. Radical developments like the lifetime pension model should be longer term policy considerations.”