Mon 31 Mar 2014
Before the Budget we all thought we knew broadly where we were on pensions and ISAs. On pensions the new rules on lifetime limits were on everyone’s mind with the April 2014 reduction of the limit from £1.5 to £1.25m, and the need to consider fixed protection against the reduction. The expectation was that the limit would not rise with inflation thereby catching more and more pension pots as the real value of the limit reduced.
The proposed changes to defined contribution pensions are genuinely radical. Whilst the detail will be subject to consultation, from next year savers will be entitled to access their pension pot in full. The tax free lump sum of 25% of the available fund will remain, with the rest being able to be taken with complete flexibility subject only to marginal income tax rates (presumably within the lifetime allowance – the policy document is silent on this). Annuities will no longer be compulsory and so the demand for them will diminish considerably, as will the need for the controlled framework of drawdown, though drawdown products will remain.
There are some immediate changes from 27 March 2014 relaxing the requirements for drawdown and increasing the small commutation tax free lump sum limits.
This is increased from 120% to 150% of equivalent annuity that could be purchased with the pension pot available.
This annual income ‘means test’ is currently designed to prevent pensioners spending their entire pension pots on Lamborghinis and then falling back on the state for support. The amount of annual income an individual will need to demonstrate they have in retirement before they can enter flexible drawdown is reduced from £20,000 per annum to £12,000 per year. Clearly this will be completely removed with the April 2015 reforms.
This facility to cash in pension pots that are small is extended from pension funds worth a maximum of £2,000 to a £10,000 limit and the current maximum of two such small pots is now three.
Clients should not rush automatically to take immediate “advantage” of the changes. There are more, greater changes in the offing.
From 6 April 2015 the proposal is that there should be no drawdown limit. All pension drawings would instead be taxed at the individual’s marginal income tax rates. One might suppose that this will be subject to the lifetime allowance (LTA) with pension drawings exceeding the LTA taxed penally. The policy document is silent on the lifetime allowance.
What is not quite clear at the moment is how these provisions interact with the (LTA) which was changed only last year. The likelihood is that the LTA will remain. Individuals currently affected by the reduction in the lifetime allowance need to consider elections for fixed protection 2014 and/or individual protection 2014. The deadline for fixed protection 2014 is 5 April 2014 and is 5 April 2017 for Individual Protection 2014. One word of caution for anyone opting for fixed protection is that they need to be vigilant against breaking its conditions. For example, by being auto-enrolled into a workplace pension scheme as any further contributions breach fixed protection. In such a case it will be necessary to opt out of the auto-enrolment before any contributions are made.
HMRC have published updated guidance notes on individual protection (“IP2014”) from the pension lifetime charge. IP2014 was announced in Budget 2013 alongside the reduction in the lifetime allowance from £1.5m to £1.25m. Most individuals with more than £1.25m of pension saving on 5 April 2014 are entitled to apply for IP2014. Applying for IP2014 gives the […]
April 2014 sees the pension lifetime allowance (LTA) cut from £1.5 Million to £1.25M. HMRC estimate that 30,000 people will be immediately affected by the cut and the consequences of breaking the limit are significant, a potential 55% tax charge on a part of your pension funds. The lifetime allowance (LTA) is the maximum amount […]
Politicians in both parties which make up the coalition have announced proposals to change tax aspects of pensions.
Today George Osborne delivered his fifth budget, and probably most important, of his tenure as Chancellor. In the run up to today, all the talk was about a Budget for business to maintain confidence in the economy with a specific focus on helping house-builders, exporters and reducing energy costs. With a general election only 14 […]
The most significant announcement in this year’s Budget was of greater flexibility on retirement for people with defined contribution pension schemes. It is no longer compulsory to purchase an annuity, and it will still be possible to take out 25% of the pension pot as a tax free lump sum. The main changes will come […]
The annual pension contribution limit operates by reference to pension input periods (PIPs). Each pension fund has its own PIP and all contributions within a PIP are treated as made in the year in which the PIP ends for the purposes of the annual limit charge. On 14 October 2010 the Government announced the rules […]
The annual pension allowance was reduced from £50k to £40k as from 6 April 2014 but where the allowances were not fully used in 2011/12, 2012/13 or 2013/14 the relief brought forward is the actual unused remainder of the £50k allowance, always using the earliest available allowance up first. So for example, an individual who […]
Every employer must automatically enrol workers into a workplace pension scheme who: are not already in one are aged between 22 and State Pension age earn more than £10,000 a year work in the UK The Pensions Regulator has now started contacting small and micro-sized employers (those with less than 50 employees).
HM Treasury have issued a paper giving an update on aspects of the radical reform to the pension tax rules, announced in the Budget that will take effect in April 2015. It also covers ramifications such as the way that scheme members and schemes will receive fair unbiased advice.
The legislation to implement the fundamental change to the tax rules for pensions will be a one-off separate act of Parliament, not in a finance act. The new rules have to be enacted well before they take effect on 6 April 2015, hence the Government have been forced to take this unusual step of the […]
HMRC has announced that “Pension providers will soon be sending annual allowance pension statements for the 2013 to 2014 tax year to all pension scheme members contributing more than £40,000 per year to a pension scheme.
The Chancellor’s Budget announcement today contained a raft of giveaways for business but how will it affect you personally? Currently tax relief on pension contributions is limited to the annual allowance of £40,000. However, if your ‘threshold income’ exceeds £110,000 and ‘adjusted income’ (i.e. including employer pension contributions) exceeds £150,000, the annual allowance starts to […]
The Government has recently consulted on ways to increase flexibility in the accrual of NHS pension schemes for senior clinicians to help them to avoid or manage pensions tax charges. What’s the problem? Changes to the pensions tax regime since 2010 are causing significant financial concerns to doctors who are either exceeding their annual or lifetime […]
George Osborne delivers the Coalition’s final Autumn Statement in the House of Commons on 3 December. We reckon he’ll use this opportunity to remind us of the economic achievements of the Coalition, but will there be carrots promising reductions in future tax bills? By good fortune or good judgment, the UK’s economic performance is top […]
The Chancellor today announced that he will abolish tax on annuity payments that are made to spouses after their partner has died. This applies to married pensioners. Currently surviving partners of spouses with joint life or guaranteed annuities must pay tax on the income payments they receive from a joint life annuity. Typically, this is […]
Pensions were once again prominent in the Budget with news that the Annual Allowance will undergo yet another revamp and that the future of pensions tax relief will come under the spotlight in a Government Green Paper. From April 2016 the government will introduce a taper to the Annual Allowance for those with adjusted annual […]
New rules are being introduced to align pension input periods (PIPs) with the tax year by April 2016. The transitional rules to enable this effectively mean that 2015/16 is being split into two, potentially allowing high earners an additional opportunity to augment their pension funding now. The first new PIP will be from 9 July 2015 […]
Reduction of pensions lifetime allowance As announced in the March Budget the lifetime allowance (LTA) will be reduced from £1.25m to £1m, with effect from 6 April 2016. Protection arrangements will apply. The LTA will be indexed in line with the CPI in 2018/19 and subsequent years, with the allowance always being rounded up to […]
A raft of changes have been made to the rules around pension flexibility to ensure people who are seriously ill and the young are able to access their pension and are not unfairly penalised with large tax bills. The Budget has announced rule changes to remedy anomalies and injustices created unintentionally by pensions freedom. The […]
5 April sees the end of a significant opportunity to make highly worthwhile pension savings by taking advantage of: • the doubled annual allowance for 2015/16; and • unused allowances brought forward from the years 2012/13, 2013,14 and 2014/15. 2015/16 annual allowance This year was split between two pension input periods (PIPs); the first of which ran […]
The March 2015 Budget contained the announcement that “The government will legislate from April 2016 to allow people who are already receiving income from an annuity to agree with their annuity provider to assign their annuity income to a third party in exchange for a lump sum or an alternative retirement product.” This created the […]
In the Autumn Statement, Philip Hammond announced proposals for the pensions Money Purchase Annual Allowance to reduce from £10,000 to £4,000 per annum, with effect from April 2017. Since April 2015, pension savers have enjoyed increased freedom of choice in how they access their pension savings. This has given them the opportunity to structure their […]
From 6 April 2017 pension scheme members will have the freedom to make withdrawals of up to £500 from their pension pots to pay for advice about withdrawing and investing their pension funds. The £500 will not be taxed on withdrawal from the pension pot, regardless of the individual’s income and the individual will be […]
The Taxation of Pensions Bill 2014 (TPB) will enact the tax changes enabling flexibility of pension draw-down. Changes were announced to the tax treatment of funds remaining in a personal pension scheme on the death of the member. Under current rules, any pay-out to the deceased’s beneficiaries is taxed at 55%. The Government is abolishing […]
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