Newsletter: No shocks for Pension in Autumn Statement 2014

Newsletter

No Shocks for Pension in Autumn statement 2014

Below is a summary of the key announcements in this years autumn statement:

No change to pensions tax relief or to the tax-free lump sum

Against a background of gathering political momentum for a widespread review of the pensions tax regime, none was announced. This may prove little more than a reprieve until after next year’s general election, but it is welcome nonetheless. Similarly, the 25% tax-free lump sum remains unscathed.

Level (tax) playing field on spouse’s annuities and draw-down – but not scheme pensions

As widely trailed, where an annuitant dies before age 75, there will be no income tax on any resulting dependant’s annuity. This change will apply to the first payment after 6 April 2015, even if the ‘original annuitant’ died before that date. The tax rules will also be changed to allow a joint life annuity to be passed on to any beneficiary, with the same income tax treatment. These changes bring annuities into line with unused draw-down funds. However, there is no such easement for dependants’ scheme pensions from defined contribution (DC) or defined benefit (DB) arrangements.

Individual savings accounts (ISAs)

The ISA limit for 2015-16 will increase to £15,240. More significantly, from today, when a married ISA-holder dies their spouse will be able to retain the tax advantage on ISAs they inherit.

State pension

The Basic State Pension payable from April 2015 will increase by 2.5% (£2.85 a week) to £115.95. The standard minimum income guarantee within the Pensions Credit will match the cash increase, taking the single tier State Pension – payable to those reaching State Pension Age from April 2016 – to at least £151.25 a week in 2015-16 terms. The actual amount will be set in autumn 2015.

Pensions and means-tested benefits

When determining entitlement to means-tested benefits in ‘retirement’, uncrystallised benefits and draw-down funds are considered as if they were delivering an income. This amount will be determined as 100% (it is currently 150%) of the equivalent annuity, or the actual income taken if higher. 

Pensioner bonds

From January 2015, pensioner bonds – intended to help pensioners hit by low savings interest rates – will be available. The interest rates will be confirmed on 12 December 2014. Bonds are expected to be restricted to maximum holdings of £10,000 and will be available only to those aged at least 65.

Income tax and National Insurance thresholds

The Income Tax personal allowance will increase to £10,600 from April 2015. The basic rate limit will be £31,785, with the higher rate (40%) threshold increasing to £42,385.

The National Insurance upper earnings limit will increase to stay in line with the higher rate threshold. The basic, higher and additional rates of Income Tax for 2015-16 will remain at their 2014-15 levels. It is not clear whether the earnings trigger for auto enrolment will continue to be aligned with the personal allowance. The Government recently consulted on four options for setting this limit.

 In2Matrix (UK) Limited is an appointed representative of In2Consulting Limited, 

which is authorised and regulated by the Financial Conduct Authority.

Newsletter: Employee Assistance Programme (EAP) survey results.

A survey done on behalf of The Health Insurance magazine suggests that employees who use an employee assistance programme (EAP) are more able to cope with the demands of their job, deal with their problems and boost interpersonal relationships.

A known insurance company surveyed users of a brand of EAP and found that employees were three and a half times more likely to feel able to cope with the demands of their job.

A fifth (21%) rated their ability as “good” or “very good” prior to receiving counselling, compared to 75% afterwards

The survey suggests that interpersonal relationships can also be improved – 46% of people rated their relationship with their colleagues as “good” or “very good”, and 50% with their managers, before using the service, compared to 79% and 68% respectively afterwards.

After receiving counselling from the EAP provider, the percentage of employees who felt they were unable to deal with their problems fell from 78% to just 7%.

Their overall satisfaction with life increased fourfold, rising from 15% to 62%.

This survey shows that while it is important to keep life at work and at home as distinct as possible, there is an inextricable link between the two. Events in either one can bleed across the barrier and start to affect the other, and in the worst cases this can create a vicious circle of negativity.

In2 Matrix believe companies should consider to provide their employees with the tools to break that cycle as it would bolster the employees performance in return.

If you wish to receive further information regarding EAP’s please do not hesitate to contact us.

In2Matrix (UK) Limited      

101 Finsbury Pavement 

London

EC2A 1RS

Tel:+44  (0) 203 638 5152      

Fax:+44  (0) 203 638 5158        

In2Matrix (UK) Limited is an appointed representative of In2 Consulting Limited, 

which is authorised and regulated by the Financial Conduct Authority.

Fixed Protection and Auto Enrolment

It is important to find out your future employees pension status before they join your company pension or Registered Group Life Scheme as they could be subject to additional tax charges by joining your company pension or group life scheme?

There are several types of protection offered to employees with larger pension values since the advent of A-day in April 2006.  These protections are designed to minimise the impact on employees who have pension savings in excess of limits imposed by the government.

Savings in excess of these government limits are taxed at penal rates through a lifetime allowance charge.  Therefore, it is important for you as a HR individual to understand the impact that joining your company pension scheme or registered group life scheme could have on an employee who has applied for these protections.

• Enhanced Protection
• Primary Protection
• Fixed Protection

On 6 April 2012 the lifetime allowance was reduced to £1.5 million from the £1.8 million it was in 2011-12. As members may have already built up savings of more than £1.5 million or have planned to do so in the expectation that the lifetime allowance would not reduce from the 2011-12 level, a new form of protection called “fixed protection” was set up.

If a member expected their pension savings may be more than £1.5 million (including taking into account past crystallisations) when they come to take their benefits they could use fixed protection to help reduce or mitigate the lifetime allowance charge.

Fixed protection allows individuals to crystallise benefits worth up to £1.8 million without paying the lifetime allowance charge, although the ability to accrue future benefits is limited. The fixed protection should been applied for prior to 6^thApril 2012 and you could not have fixed protection if you had either primary or enhanced protection.

Fixed Protection 2014

Fixed protection 2014 works in a similar way to the existing fixed protection regime introduced in April 2012. From 6 April 2014 the standard lifetime allowance was reduced from £1.5 million to £1.25 million but with fixed protection 2014 the lifetime allowance is fixed at £1.5 million. This means you can take pension savings worth up to £1.5 million without paying the lifetime allowance charge. You had to apply before 6^th April 2014 to get fixed protection 2014.

You could not have fixed protection 2014 if you already had primary, enhanced or fixed protection.

From 5^th April 2012 you could lose the fixed protection or fixed Protection 2014 if you:

·         have a contribution paid to any of your money purchase pension pots

·         build up new benefits in a defined benefits or cash balance pension pot above a set amount - find out more by following the link below

·         join a new pension scheme - unless you're only transferring pension savings from one of your existing schemes into the new scheme including an Auto-enrollment scheme

·         start saving in a new pension pot either under an existing pension scheme or a new pension scheme

Individual Protection 2014

 

As well as fixed protection 2014, the government introduced individual protection 2014, applicable from 6^th April 2014, for those with pension savings on 5 April 2014 valued at over £1.25 million.

Individual protection 2014 will give a protected lifetime allowance equal to the value of the pension rights on 5 April 2014 - up to an overall maximum of £1.5 million. An individual will not lose individual protection 2014 by making further savings in to a pension scheme but any pension savings in excess of the protected lifetime allowance will be subject to a lifetime allowance charge.

An individual will be able to apply for this from August 2014. HMRC must receive the application by 5 April 2017.

An individual can hold both fixed protection 2014 and individual protection 2014 but you can't apply for them at the same time. They can also hold individual protection while holding either enhanced protection or fixed protection but cannot apply for individual protection if you already hold primary protection.

Pensions Act 2008 provisions for automatic pension enrolment while having fixed protection

If an employer is subject to the automatic enrolment duty and automatically enrols an individual into a new pension scheme, they will have one month from the enrolment date to opt out of the new scheme.

If they opt out within that one month period then the law treats them as if they were never a member of the pension scheme.  So if after 6^th April 2014 an employee who has fixed protection who is subject to automatic enrolment and opted out within one month will keep their fixed protection.

If they do not opt out in time then they will lose their fixed protection. An employer will have a duty to automatically enrol those who have opted out every three years, so an individual will need to opt out within one month each time this happens.

If they change employer and the new employer is subject to the automatic enrolment duty, they will be required to automatically enrol the employee into their pension scheme. If the individual has fixed protection they will also need to 'opt out' of the new employer's pension scheme when they are automatically enrolled to avoid losing the fixed protection.

As a registered group life policy is also registered using pension rules, any payment into a Registered Group Life policy on behalf of an individual to cover the cost of premiums will also be treated as a payment for pension purposes and would lose pension protection.  It is important to consider the options available on Group Life Policies to ensure maximum cover of all risks.

 In2Matrix (UK) Limited is an appointed representative of In2Consulting Limited,

 which is authorised and regulated by the Financial Conduct Authority.

Newsletter: Important changes to Lifetime Allowance from 6th April 2014

Important Changes to Lifetime Allowance from 6^th April 2014

From 6 April 2014 the lifetime allowance will be reduced to £1.25 million. The lifetime allowance is the limit set by HMRC for the total value of all pensions and exceeding it could result in a tax charge.

A new form of protection called fixed protection 2014 is being introduced to protect those who have built up pension pots of more than £1.25m but no more than £1.5 million. People will be able to apply for fixed protection 2014 from August 2013.

Fixed protection 2014

Fixed protection 2014 will work in a similar way to the existing fixed protection regime introduced in April 2012. From 6 April 2014 the standard lifetime allowance will be reduced from £1.5 million to £1.25 million but with fixed protection 2014 you can fix your lifetime allowance at £1.5 million. This means you can take pension savings worth up to £1.5 million without paying the lifetime allowance charge. You'll have to apply before 6 April 2014 to get fixed protection 2014.

You can't have fixed protection 2014 if you already have primary, enhanced or fixed protection. You'll lose fixed protection 2014 if you:

·                     have a contribution paid to any of your money purchase pension pots

·                     build up new benefits in a defined benefits or cash balance pension pot above a set amount

·                     join a new pension scheme - unless you're only transferring pension savings from one of your existing schemes into the new scheme

·                     start saving in a new pension pot either under an existing pension scheme or a new pension scheme

If you're unsure of the value of your pension savings and don't know whether you need fixed protection 2014 contact your scheme administrator or financial adviser. You can also use the lifetime allowance checking tool (see the first link below) to help you decide whether to apply for fixed protection 2014 and also individual protection 2014.

Use the second link below to apply online for fixed protection 2014. This is the most secure route and offers the benefit of immediate confirmation of receipt. If you haven't got a National Insurance number you will need to apply by post.

Individual protection 2014

As well as fixed protection 2014, the government has announced that individual protection 2014 will be available when the lifetime allowance is reduced to £1.25 million for 2014-15. Individual protection 2014 will apply from 6 April 2014, for those with pension savings valued at over £1.25 million on 5 April 2014.

Individual protection 2014 will give a protected lifetime allowance equal to the value of your pension rights on 5 April 2014 - up to an overall maximum of £1.5 million. You will not lose individual protection 2014 by making further savings in to your pension scheme but any pension savings in excess of your protected lifetime allowance will be subject to a lifetime allowance charge.

You'll be able to apply for individual protection 2014 from mid-August 2014. Your application must be received by HMRC no later than 5 April 2017.

You can hold both fixed protection 2014 and individual protection 2014 but you can't apply for them at the same time. You can also hold individual protection while holding either enhanced protection or fixed protection but you can't apply for individual protection if you already hold primary protection.

For more information on individual protection 2014 follow the link below.

Where can I get more information

Lifetime Allowance Checking tool - http://www.hmrc.gov.uk/tools/lifetimeallowance/index.htm 

Online application for fixed protection - http://www.hmrc.gov.uk/pensionschemes/fp14online.htm

Online guidance for fixed protection – http://www.hmrc.gov.uk/pensionschemes/fp2014guidance.pdf

Individual Protection Guidance Note - https://www.gov.uk/government/publications/pensions-individual-protection-2014

The information provided in this article is not intended to offer advice.

It is based on In2Matrix interpretation of the relevant law and is correct at the date shown at the top of this article. While we believe this interpretation to be correct, we cannot guarantee it. In2Matrix cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

In2Matrix (UK) Limited is an appointed representative of In2 Consulting Limited,

 which is authorised and regulated by the Financial Conduct Authority.

Newsletter: Pension Changes 2014

Newsletter: Pension Changes 2014

                                    

The proposals announced in the Chancellor of the Exchequer’s Budget Statement and the HM Treasury Consultation Document issued in March 2014 were subject to a period of consultation which has now closed.

Background

The Budget proposed the following pension changes: 

       From 27 March 2014:

• The capped draw-down Government Actuary's Department (GAD) limit will be increased from 120% to 150%.
• The minimum income requirement for accessing flexible draw-down will be reduced from £20,000 to £12,000.
• The amount for small individual pension pots that can be taken as a lump sum (regardless of total pension wealth) will increase from £2,000 to £10,000 and individuals will be able to take 3 individual pension pots as lump sums (previously only 2 allowed).
• The total pension wealth that people can have before they are no longer entitled to receive lump sums under trivial commutation rules will increase from £18,000 to £30,000              From January 2015:
• National Savings & Investments will be offering a 1yr pensioner bond that is
  expected to pay 2.8% and a 3yr pensioner bond that will be paying 4%. Maximum investment £10,000.
  From 6 April 2015:
• Unlimited access to pension funds from age 55 with 25% tax free and the remainder at marginal rates of income tax.
• Proposal to link the minimum pension age 55 to State Pension Age (SPA) by introducing the minimum age to SPA minus 10 years.
• All individuals with defined contribution pension pots are offered free and impartial face-to-face guidance at the point of retirement and up to £20 million will be made available in the next 2 years to develop this initiative

Current position

Following the consultation period, the proposals appear to have been left more or less unaltered, but some additional amendments have been included in the full government response published on the 21^st July 2014.

The main areas of the consultation, which is now expected to become law from April 2015, are as follows: 

From age 55 (increasing to age 57 in line with State Pension Age by 2028) all individuals with defined contribution pension benefits will be able to access all of their fund, subject to only their highest marginal rate of taxation

• The 25% tax free cash entitlement will remain. The remainder of a money purchase pension scheme “pot” may be accessed, without penalty, at any age over 55. Any income (in excess of the 25% tax-free cash entitlement) taken from the pot will be subject to income tax, as appropriate.

• Transfers out of private sector defined benefit schemes and funded public sector schemes will continue to be permitted.
• ‘Free and impartial guidance’ will be available to anyone wishing to vest their pension benefits, although it is unlikely this will be provided via the IFA community or through product providers.
• Access to the above guidance must be arranged by the pension provider who will also have a duty to make individuals aware of this entitlement.

• Pension changes brought in immediately after the March budget will remain in place (eg. up to £30,000 lump sum ‘triviality’ option, 3 x £10k ‘small pot’ vesting and 150% GAD limit on existing capped draw-down plans).

In addition to the above updates, the government’s response to the consultation document also includes some additional proposals. Significant among these are the following: 

• A proposal to limit new pension contributions for anyone using pension flexible access to a maximum of £10,000 gross per annum (this proposal is designed to limit the ‘recycling’ of tax free cash and pension income to obtain additional tax relief, or to use ‘salary sacrifice’ to avoid National Insurance charges on income after age 55)
• A proposal to introduce a new (as yet unspecified) level of tax on the payment of death benefits from defined contribution pension schemes in draw-down, in line with the reduced level of taxation on vesting
• A ‘permissive statutory override’ for pension schemes, which will permit them to pay out pension benefits flexibly, in line with (new) tax rules, rather than in line with existing scheme pension rules
• Statutory provision to allow transfers between defined contribution schemes at any point up to the scheme’s Normal Retirement Date (some occupational schemes do not currently allow transfers out within twelve months of the scheme NRD)
• Amend lifetime annuity legislation to allow additional options such as decreasing annuities, lump sum withdrawals and guarantees in excess of ten years.

In2Matrix (UK) Limited is an appointed representative of In2Consulting Limited, 

which is authorised and regulated by the Financial Conduct Authority.