Pensions; 2021/22 lifetime allowance and more

• 2021/22 Lifetime allowance
• Above inflation increase for state pensions
• Retirement savings and the self-employed
• TPR publishes new guidance for trustees and employers considering a DB superfund
• DWP confirms reform to DC annual benefit statements

2021/22 Lifetime allowance

(AF3, FA2, JO5, RO4, RO8)

Based on the published Annual CPI to September 2020 of 0.5% and legislation, the Lifetime Allowance for 2021/22 would be calculated as £1,078,500.

However, last year when announced the Lifetime Allowance was actually increased using the CPI indices to three decimal places, which would give a Lifetime Allowance for 2021/22 of £1,078,900

Prior to this we saw the Lifetime allowance rounded up to nearest £5,000, so we will have to wait for confirmation in legislation to be sure.

Regulations state that the previous Lifetime Allowance will be:

(a)        increased by the percentage increase in the index, and

(b)       if the result is not a multiple of £100, rounded up to the nearest amount which is such a multiple.

The index referred to above is CPI.

Above inflation increase for state pensions

(AF3, FA2, JO5, RO4, RO8) 

The state pension and new state pension are increased each April by the “Triple Lock” which is the higher of:

• Annual CPI from the September before the increase;
• 3-month average wage growth to July before the increase; or
• 5%.

Average wage growth was -1.0% and CPI was 0.5%, so the state pension and new state pension will increase by 2.5 % from April 2021.

This means the full new state pension will see an increase from £175.20 to £179.60 per week and the full old basic state pension will see a rise from £134.25 to £137.65 per week.

This is the third year we have seen above inflation increases to state pensions, with earnings figures determining the last two rises.

These figures still need to be confirmed by the Government before being put into legislation. 

Retirement savings and the self-employed

(AF3, FA2, JO5, RO4, RO8)

The Institute for Fiscal Studies (IFS) Retirement Saving Consortium, which includes the ABI, several major life companies and the DWP, has funded research into retirement savings among the self-employed. Although about 14% of the workforce, according to the latest Office for National Statistics (ONS) data, it is a sector which has largely been overlooked by successive Governments, which have focused on employees and the implementation of automatic enrolment. This is well illustrated by the graph below, which shows private pension membership since 1998/99, with an obvious uplift from 2012/13 when auto-enrolment began: