On Wednesday the Chancellor of the Exchequer will deliver his final Budget before the 2015 general election. The big news for individuals will be the option to sell annuities for cash. Meanwhile, Nick Griggs, head of corporate consulting at Barnett Waddingham LLP, considers ways in which this government – or the next – could assist employers sponsoring workplace pension schemes.

1: Clarify treatment of VAT on investment costs

Following recent European court cases, HMRC has issued several briefings relating to the treatment of VAT on pension scheme administration and fund management costs. The position remains far from clear, particularly for defined benefit schemes.Griggs says: “It would be helpful if the Government could set out clearly when the VAT exemption applies. Incomplete guidance has left employers uncertain how to proceed. Even better, the Government could assist employers greatly by allowing them to reclaim VAT on all pension management costs.”

2: Stability in tax relief on pensions

Despite the impact of inflation, the lifetime and annual allowances have been dramatically slashed from £1.8 million to £1.25 million over the last three years. Some parties are saying they will make a further cut to £1 million, or other changes to tax relief.Griggs says: “Pensions are supposed to be a long-term deal. A period of stability is needed to allow individuals to better plan for their retirement, particularly as the new flexibilities are introduced. With ever increasing life expectancies pensions are very expensive to provide so further cuts in the lifetime and annual allowances may make it difficult for many members of defined contribution schemes, who would not consider themselves high earners, to save enough to maintain their living standards in retirement. It could also have big implications for long serving defined benefit members who receive a significant promotion.”

3: Review of automatic enrolment contributions

Pensions minister Steve Webb has suggested that the next government should consider “auto-escalation” of contributions to automatic enrolment qualifying schemes. Under auto-escalation, contributions would increase as an employee’s salary increases.Griggs says: “The minimum contributions to automatic enrolment schemes are unlikely to provide a comfortable income in retirement. We would welcome the government encouraging members to contribute more. However, businesses need a period of stability in the pensions rules and we would caution against increasing employers’ minimum contributions while businesses are still recovering from the recession.”

4: Support risk-sharing schemes

The Pension Schemes Act 2015 introduced a regulatory framework for new forms of risk-sharing schemes, sitting between defined benefit and defined contribution.Griggs says: “Innovative scheme designs have great potential to provide better outcomes for members than pure defined contribution, while controlling costs for employers. Most employers are not yet ready to offer such arrangements but having the option available for the future is useful and the government should embrace the possibilities and provide additional support to employers forging this new frontier.”

5: Effort to reduce red tape

The Work and Pensions Committee of the House of Commons has recently backed the case for a single pensions regulator. Regulation is currently shared between The Pensions Regulator and the Financial Conduct Authority.Griggs says: “While the Red Tape Challenge went some way towards reducing the burden of unnecessary legislation, we have had a torrent of new pensions legislation in the last few months. We think that it is time to stop and take stock of the situation, and consider whether more can be done to cut red tape.”