Pensions Newsletter Winter 2011
Inside this issue:
Pensions Tax Changes Confirmed - Action Required
In October, the coalition government issued its response to a consultation paper published in July seeking views on the previous government’s proposal to reform pensions taxation. Whilst the changes are not as onerous as expected more individuals will be brought within the scope of tax charges.
Key changes
The key changes are:-
- Reducing the annual allowance from £255,000 to £50,000 from 6 April 2011. There will be a three year carry forward mechanism.
- The lifetime allowance will be reduced from £1.8m to £1.5m from April 2012.
- Deemed contributions to final salary schemes will be calculated using a flat factor of 16 (on the advice of the Government Actuary’s Department) ie an annual accrual of £1,000 will use up £16,000 of the annual allowance.
- Deferred members will be exempt from the annual allowance regime, provided revaluation of deferred pension does not exceed “reasonable limits”. However, deferred members with a link to final salary will be caught.
- There will no longer be an annual allowance exemption in the year the benefits come into payment.
- The annual allowance test will not be applied in the year of death, nor the year in which a serious ill-health lump sum is paid and the government is to consider whether there should also be an exemption for any other “major” ill-health.
What does this mean for me?
Scheme administrators will have to put systems in place to implement the changes coming into effect in April 2011.
Trustees will have to:
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Inform scheme members about the new regime.
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Consider the impact of the changes on overall scheme design for example whether to introduce a cap on accrual or amend the definition of Pensionable Salary.
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Calculate the amounts counting towards the annual allowance for members and advise them accordingly.
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Identify early retirements which might qualify for exemption from the annual allowance on ill-health grounds.
Employers will have to consider the following:-
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The remuneration packages of any employees affected by the new limits.
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Consider the impact of the changes on any redundancy terms.
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Consider if scheme design needs to be changed and if so consider whether members will have to be consulted.
Individuals will have to consider:-
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Whether they are affected by the new reduced levels of the annual allowance and lifetime allowance.
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If the annual allowance is exceeded, investigate whether they have any unused allowance which can be carried forward.
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Consider alternative savings vehicles if appropriate.
Action
Whilst the changes are not as onerous as expected alot of individuals will be affected and so employers, trustees, individuals and scheme administrators should all review their pension arrangements to see what action is required. The first changes are going to be introduced in April 2011 so there is a limited window to take advantage of the higher annual allowance. Action should be taken now. If you wish assistance with this, please contact a member of the pensions team.
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Automatic Enrolment Will Go Ahead
The government published the results of its review into auto-enrolment and the National Employment Savings Trust (NEST). The previous government had put these proposals in place to address the concerns that the population is not saving enough for retirement. It recommended that employers auto-enrol employees earning over a certain amount into NEST or another qualifying scheme which meets certain conditions.
The key results of its review are:-
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The government will proceed with implementation of reforms.
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NEST is considered necessary.
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The auto-enrolment requirements will apply to ALL employers, regardless of size and the government does not propose to introduce exemptions.
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There will be a phased in start date from 2012 to 2016 depending on the size of the Employer.
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Introduction of a three month waiting period before an employee is automatically enrolled.
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Income threshold at which individuals are automatically enrolled is raised to the same level as the personal allowance for income tax (£7,475 from 2011).
If you wish to know more about auto-enrolment then please contact a member of the Pensions Team.
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Reminders for Fast Approaching Deadlines
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Contingent Asset Agreements:
If you have a contingent asset in place and use/are planning to use this as a way of reducing your PPF levy for year 2011/2012, the deadline for lodging this with the PPF is 31 March 2011. You should begin the process now as it can take a while to go through the various steps.
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End of A Day Regulations
Special provisions which made it easier to amend pension scheme rules to comply with A-Day tax changes and overriding transitional provisions expire on 5 April 2011. You should check that you have made all the changes to your scheme that you need to before then.
Electronic Disclosure - Schemes are now able to communicate electronically
Changes to the Disclosure Regulations introduced in December 2010 mean that when disclosures are required to be made to a member the trustees have the option, as an alternative to sending it to the last known postal address, of issuing the information via e-mail or publishing relevant information on a website and alerting the members to its location. Members will be able to opt-out of receiving information by electronic means, in which case their scheme will have to provide the information by post.
Where information is to be published on a website the trustees must be satisfied that the communication is adequate to ensure that the recipient will be able to access and store or print the information and must bear in mind the needs of recipients who have any form of disability which may affect this.
The regulations also allow less comprehensive Statutory Money Purchase Illustrations to be issued. These require less information to be included in the illustration so long as this is available on request. Similar changes are also introduced for annual benefit statements.
If you wish more information on communicating with members electronically then please contact a member of the pensions team.
The information contained in these articles is given for general information only, reflects the current law on the date of the article, and does not constitute legal advice on any specific matter
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