Changes to Pension Rules

Desite the numerous changes to pension rules already over the last 20 years (including the Pensions Act 1995, Stakeholder schemes, 'A' Day), pensions continue to be a hot political subject and further changes are already in the pipeline:

Compulsory Employer Contributions

It is expected that with effect from October 2012 legislation will have been enacted requiring employers to contribute into each employee's pension fund:

• Will initially apply to large employers (> 89 staff). Small employers (< 50 staff) will be included in the new scheme from 2016.

• All such employers will be automatically enrolled, unless their employees opt out.

• Contribution rates, which will be phased in, will be:

  • 3% - Employer.

  • 4% - Employee.

  • 1% - Government.

• A new type of low cost pension fund will be created (NEST).

Reduction in Individual's Maximum Annual Contributions

From 2011/12, the current cap on maximum annual pension contributions per individual will be reduced:

• Cap reduced from £255k pa to £50k pa.

• After 2015/16 this £50k cap may be index linked.

• Will relate to total of both Employer's and Employee's contributions.

• There will be a 3 year carry forward facility for any unused annual allowance.

Reduction in Individual's Lifetime Allowance

The current cap on maximum lifetime pension per individual will also be reduced:

• Cap reduced from £1.8m to £1.5m.

Extension of Latest Date to Purchase an Annuity

With effect from 22 June 2010 the deadline when a pensioner is forced to convert his/her pension fund into a secured income (annuity) is extended:

• From 75th birthday to 77th birthday.

Increase of Earliest Date to Commence Drawing a Private Pension

With effect from 6 April 2010 the earliest date that a private pension can be drawn without incurring an unauthorised payment tax charge increased:

• From aged 50 to 55.

Abolition of Latest Date to Purchase an Annuity

From April 2011 there will be no specific age deadline for purchasing an annuity. Instead, individuals will be able to start or continue income drawdown.

Other Pension Rule Changes

As part of the overall review of pensions, other changes include:

• The rules relating to income drawdown.

• Taxation of death benefits.

• From April 2011, basic state pension will increase annually by the highest of earnings inflation, price inflation and 2.5%.

• From November 2018 (two year earlier than previously planned) male and female retirement ages will be equalised at 65.

Whiting & Partners are able to advise clients in relation to the tax aspects of pensions. For product specific pension advice we will be pleased to introduce you to an adviser from Whiting & Partners Wealth Management Limited, Independent Financial Advisers, a separate subsidiary company, authorised and regulated by The Financial Services Authority.

Practical Examples of our Pensions Expertise

Sheltering pension life assurance policies in trust, for tax and practical reasons. Using a Small Self Administered pension Scheme (SSAS) as an onshore tax haven.

Salary sacrifice to boost pension funding. Preparing statutory accounts for SSAS and insured pension schemes.