Earlier this month, the Chancellor presented his Summer Budget to Parliament. We have reviewed the announcement and below we have summarised the key points which relate to Pensions law.
1) All change on limits with effect from the start of the next tax year:
- The lifetime allowance will be reduced to £1m.
- The annual allowance will be tapered for high earners.
High earners will be assessed on their “adjusted income” which takes into account pension contributions made by them and on their behalf, which will prevent any use of salary sacrifice to avoid the impact of the taper.
Any individual with adjusted income of over £150,000 will be affected by the change, to the extent that the individual's annual allowance will be reduced by £1 for every £2 or earnings in excess of this.
The effect of this will be that those earning in excess of £210,000 will be subject to the maximum reduction meaning their annual allowance figure will be £10,000.
Those with an income of £110,000 or less, excluding pensions contributions will not be affected by the taper.
Any pensions input period which was open on the day of the budget is deemed to have closed immediately on that day and a new pension input period will run from 9 July 2015 to 5 April 2016 after which this will be realigned with the usual tax year.
2) Reform of the pensions tax relief system has been proposed and a consultation has been launched which will run until September.
The aim of the consultation is to assess whether there is a case to reform the current system, both to ensure that this incentivises more people to take responsibility for their pension saving and to ensure that that system is sustainable.
The consultation is based around eight questions:
- To what extent does the complexity of the current system undermine the incentive for individuals to save into a pension?
- Do respondents believe that a simpler system is likely to result in greater engagement with pension saving? If so, how could the system be simplified to strengthen the incentive for individuals to save into a pension?
- Would an alternative system allow individuals to take greater personal responsibility for saving an adequate amount for retirement, particularly in the context of the shift to defined contribution pensions?
- Would an alternative system allow individuals to plan better for how they use their savings in retirement?
- Should the government consider differential treatment for defined benefit and defined contribution pensions? If so, how should each be treated?
- What administrative barriers exist to reforming the system of pensions tax, particularly in the context of automatic enrolment? How could these best be overcome?
- How should employer pension contributions be treated under any reform of pensions tax relief?
- How can the government make sure that any reform of pensions tax relief is sustainable for the future?
3) The shake-up of annuities has been delayed with the government confirming that any implementation of a secondary market in annuities will now take place in 2017, not 2016 as was originally announced.
If you have any questions about the summary or how the changes will impact on any exiting schemes, please contact one of our Pensions specialists below.
Author: Vicki ThomasThis information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.