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.

News Release: Further Pension Changes Threaten Financial Advice in the Workplace

N E W S  R E L E A S E

Further Pension Changes Threaten Financial Advice in the Workplace

The Department of Work and Pension (DWP) have recently announced further changes to workplace pensions which could add further costs to an employer providing access to financial advice through workplace pension clinics.

Workplace pensions with auto enrolment are a step in the right direction and will bring a greater level of pension saving mainly as a result of employee inertia rather than the identified need to save.

The changes proposed recently include:

·         A charge cap to the default investment under a qualifying auto enrolment scheme

·         Any pension scheme currently paying a commission to an adviser for services provider to the employer and its employees will have to stop

·         A quality benchmark, greater degree of responsibility on providing a well run pension scheme and being able to demonstrate it

·         To provide access to at retirement advice/guidance

Having just reviewed or implemented your scheme to ensure its compliance with auto enrolment, who is now going to take responsibility for reviewing your scheme, meets these new quality standards and who is going to pay for it?

Employee Education

One of the important jobs of any adviser is to be on hand at pension clinics or on request to deal with employee questions regarding the pension scheme.  To help employees with the important decisions and advise them on a journey to retirement.

How well do your employees understand the following issues?

·         Are they saving enough to meet their retirement needs?

·         Is the chosen investment suitable for them?

·         What happens when their situation changes?

·         What are their options on retirement?

·         What are the tax implications and options?

Why is this important for you?

If an employee is not financially aware of the decisions they are making how much could this cost an organisation in relation to;

·         Lost talent?

·         Recruitment costs?

·         Stress for other employees?

·         Reduced production?

Research shows that employers want to develop “Financial Education” for employees, but how?

In2Matrix believes that this goal is an important one for employer to achieve.  The education of staff on key financial and employee benefit related issues is not only important for the recruitment and retention of employees but also for their ongoing health and productivity.

Consider you own position; would you be less productive if you had financial stress? Would you be more or less likely to look for a new job? A financially insecure employee is liable to have more stress related absence, spend more time dealing with financial issues in the workplace and have reduced productivity ultimately resulting in the employee looking for a higher paid job.

The DWP and the Financial Conduct Authority have put the onus on employees to seek out and receive their own independent Financial Advice and pay for it themselves (along the lines of an Accountants or Solicitor).  This is great if you can afford to, However, at £150 an hour of more how many will seek this solution?

The proposal is that “at retirement advice/guidance” is going to be provided for free? But by who? And at what cost?

We would like to help you assess the impact of the proposals on your business.  As an expert in providing both generic and specific financial education and advice through a variety of methods we believe that we can deliver a cost effective quality solution to even the largest of employers.

Our solution is incorporated as part of a larger benefit review which is designed to bring potential savings to an employer which may offset the costs of the education. Bringing this within the budgets already agreed.

One of our consultants will be happy to discuss our education solutions and demonstrate the feasibility of incorporating them in your current benefit package.

Contact Neil Fallon on 020 3638 5152 or email Neil.Fallon@in2matrix.com

Press Release: In2Matrix and Towers Watson launch corporate Employee Benefits alliance in Russia and CIS

___________________________________________________________________________

P R E S S  R E L E A S E

___________________________________________________________________________

In2Matrix and Towers Watson launch corporate Employee Benefits alliance in Russia and CIS

Moscow, May 12 2014 – In2Matrix, an international employee benefits consultancy, and global professional services company Towers Watson have, today, announced the establishment of an exclusive alliance to provide consulting and insured employee benefits solutions to local corporate and multinational businesses in Russia and the Commonwealth of Independent States (CIS).

The alliance has been created to bring industry best-practice and innovative and enhanced solutions to meet the needs of a wide range of businesses across the region. It will offer local and multinational corporate organisations in the region a full employee benefits service built on the combined global consulting expertise and proven employee benefits solutions of both firms. 

The services under the exclusive alliance will be delivered by a joint team of experts based in In2Matrix’s Moscow office, where it has operated for 10 years.

Gerard Baltazar, Chairman and Chief Executive of In2Matrix, said: “This partnership provides significant benefits to organisations based and operating within the region. The combination of expertise and experience of both parties will enable us to provide these businesses with access to first class employee benefits solutions that deliver a transparent and successful benefit strategy, responding to local operating and regulatory requirements. In Towers Watson, a globally recognised consulting brand, we have found a partner that supports our aspiration to offer an effective ‘one-stop shop’ solution for high quality employee benefits in this strategically important region.”

Simon Gilliat, Global Practice Director, Towers Watson said: “In2Matrix has built the local market expertise and understanding that will be an important factor in the delivery of the combined service. Our alliance enables us to evolve the range and scope of the employee benefits services that we both offer across the region.”

Gilliat continued: "This alliance with In2Matrix has also afforded Towers Watson the opportunity to continue to provide ongoing market intelligence and advice on Compensation & Benefits matters in Russia and the CIS locally through the former Towers Watson data services team, headed by Anna Babushkina, who have transferred to In2Matrix."

For more information, contact:

In2Matrix

Margot M. Clarenbeek

+ 31 6 17593981

Margot.Clarenbeek@in2matrix.com

Towers Watson

Jamie Kilduff

+44(0)20 7170 3746

Jamie.Kilduff@towerswatson.com

	Technical Update 18 February 2014
	The Annual Allowance & Pension Input Periods This Technical Update gives an overview of the annual allowance for pensions. It covers what the annual allowance is made up of, pension input and pension input periods and how individuals can use carry forward of previous years’ allowance to mitigate any potential tax charges they may face. If you have any queries regarding this issue, please contact: helpdesk@paradigmgroup.eu or call 0845 620 1998 The Annual Allowance Individuals can save as much as they like towards their pensions each year, but there is a limit on the amount that will get tax relief. The maximum amount of pension savings that benefit from tax relief each year is called the annual allowance. It includes employer contributions as well as individual and third party contributions. If the total from all sources – which is called pension input – is higher than the annual allowance then individuals may have to pay a tax charge on the excess amount. The pension input is the increase in an individual’s pension savings over what is known as the pension input period. It is not necessarily the same as the contributions that have been made and received tax relief within the tax year. If there is unused annual allowance from the three previous tax years then this can be carried forward to mitigate any excess pension input in the tax year in question. The annual allowance charge is not payable in the tax year in which an individual dies and there is also no pension input for pension arrangements from which an individual becomes entitled to a serious ill health lump sum or a severe ill health pension where they are unlikely to be able to work again. The annual allowance for tax year 2013/2014 is £50,000 as it was in 2011/2012 and 2012/2013. It reduces to £40,000 in 2014/2015 and is unlikely to increase in value before at least 2018. The Pension Input The pension input is made up of The total annual increase in the value of an individual’s defined benefit (DB) pension rights for the pension input period, and The contributions by or on behalf of the individual to defined contribution (DC) schemes for the pension input period. In a DB scheme, the pension input is the difference, taking into account inflation, between the capital value of the pension an individual would have been entitled to receive at the start and end of the pension input period. Early retirement factors, contributions to added years AVCs and the value of death in service benefits can be ignored. The opening and closing values for pension rights are calculated using a factor of 16:1. If the DB scheme provides tax free cash in addition to the pension rather than by commutation then the amount of the tax free cash at the start and end of the pension input period is added on to the opening and closing pension values. To take inflation into account, the opening value of the individual’s DB pension rights is increased by the annual rise in the Consumer Prices Index (CPI) to the September in the tax year before the one in which the pension input period ends, that means that the 12 month CPI increase to September 2012 is to be used to revalue the opening value of any pension input period ending in tax year 2013/2014. Emma is a member of a final salary scheme that provides for each year of service a pension of 1/80th and an additional tax free lump sum of 3/80ths of annual pensionable salary. The scheme year and pension input period runs from 1 April to 31 March and in March 2014 Emma has completed twenty years pensionable service. Her pensionable salary increased from £42,000 to £50,000 following a promotion. Her pension input amount for the 2013/2014 tax year is: Input period Start date End date Completed years of pensionable service 19 20 Pensionable salary £42,000 £50,000 Accrued pension £9975 £12,500 Accrued pension x 16 £159,600 £200,000 Tax free cash £29,925 £37,500 Opening value increased by CPI (2.2% Sept 2012) £193,694 Closing value £237,500 Pension input £43,806 There is no pension input for deferred members of DB schemes as long as their benefits do not increase in value by more than CPI (or, if greater, in line with the scheme rules that applied at 14 October 2010) and they were deferred members for the whole of the pension input period. Pension Transfers Pension transfers don’t count towards the annual allowance unless they are a pension credit as a result of divorce from a non registered pension scheme. Any contributions paid to the original scheme before the transfer are still tested against the annual allowance in the usual way. The Pension Input Period The pension input period does not have to match the tax year. Any pension input amounts paid after the pension input period end date but before the end of the tax year will not be tested against the annual allowance in that tax year but in the following tax year. Individuals can have different pension input periods for different pension schemes they are a member of and there can be different pension input periods for different arrangements within the same scheme. For a DC pension the first pension input period starts when the first contribution – no matter what the source – is made into it after 5 April 2006. Transfers in do not count and contracted out rebates did not either before they were abolished. For a DB pension the first pension input period starts when benefits start accruing after 5 April 2006. For members before 6 April 2006, this will be 6 April 2006 and for individuals who join after 5 April 2006 this will usually be the date of joining pensionable service. The first pension input period end date depends on whether the input period started before 6 April 2011 or not. If it started before 6 April 2011 it would have ended on the anniversary of the start date unless it was changed. If it started on or after 6 April 2011 it will end on the following 5 April unless it is changed. Subsequent pension input periods start the day after the end of the previous input period and last a year unless it is changed. For example, a first pension input period that started on 29 January 2007 would normally have ended on 29 January 2008 and subsequent pension input periods will normally run from 30 January to 29 January while a first pension input period that started on 29 January 2014 would normally have ended on 5 April 2014 and subsequent pension input periods will normally run from 6 April to 5 April. If an individual dies or takes all their benefits from an arrangement the pension input period will continue to the end date. The pension input period end date can be changed although it depends on the type of scheme as to who can change it. If it is a DC scheme it can be changed by either the scheme administrator or member. If it is a DB scheme it can only be changed by the scheme administrator. When changing the end date the following rules apply A pension arrangement can only have one pension input period end date in a tax year. The new end date can only be the current date or in the future. Before 19 July 2011 it could have been changed retrospectively. If the first pension input end date started after 5 April 2011 the first end date is automatically the next 5 April. This can be ended sooner, or later than 5 April as long as it’s within a year of the start of the first pension input period. Subsequent pension input periods normally last a year but can be closed early or extended to any date in the tax year following the tax year in which the pension input period started. DB scheme administrators generally change members’ pension input periods so that they tie in with the scheme year end date or company accounting date. HMRC does not have to be informed about changes to pension input periods. If an individual wants to change the pension input period end date they need to contact the scheme administrator who may need the request in writing. If both an individual and a scheme administrator change the end date for the same pension input period then it’s the first request which determines which date applies. Carry Forward of Unused Annual Allowance From tax year 2011/2012 individuals can carry forward unused annual allowance from the previous three tax years to the current tax year. This allows individuals to have pension input above the annual allowance in a tax year without facing a tax charge. This can be useful for people who have an unusually high level of pension input in a tax year, for example, because of promotion or a sudden pay rise. Unused annual allowance can only be carried forward to the current tax year from the previous three tax years. This can only be done after the current year’s annual allowance has been used up. Unused allowance is used up starting from the earliest year available. The individual must have been a member of a pension scheme at some point during the tax year being used to carry forward unused allowance. This could be as an active, deferred or retired member of a scheme. For tax years 2008/2009 to 2010/2011 the annual allowance is deemed to be £50,000. Following the reduction in Annual Allowance for 2014/15, the Carry Forward entitlement for previous tax years, up to and including 2013/14, will remain at £50,000 If there’s unused annual allowance to carry forward from a previous tax year but the annual allowance has been exceeded in a later tax year within the three year period that excess will use up some of the unused allowance from the previous tax year. This does not apply to tax years 2009/2010 and 2010/2011 as any excess over £50,000 in those years does not use up previous years’ unused allowance. The excess is treated as zero. However, if contributions in 2010/11 or 2009/10 exceeded £50,000, no carry forward allowance is permitted. For DB schemes, the pension input calculation method outlined above is used for all tax years to determine whether there is any unused allowance. Although carry forward is from previous tax years, it is based on pension input in the pension input periods that end in the previous and current tax years. Carry Forward & Tax Relief There is no carry forward of tax relief from previous tax years. Tax relief is only given in the tax year the pension contribution is made. Individual and employer contributions made to use up unused annual allowance are subject to the usual tax relief rules. Employer contributions are subject to the ‘wholly and exclusively’ test at the time they are made and tax relief on individual and third party contributions are limited to 100% of the individual’s UK relevant earnings (or £3600 if greater) in the tax year the contribution is made. Stephen is a member of a defined benefit pension scheme and also has a SIPP which he funds from self employed earnings. He varies his contributions to the SIPP with a view to maximising them where possible as his self employed earnings change. In 2013/2014 he has made contributions in excess of the annual allowance after estimating what his pension input for the defined benefit scheme would be. The final position after confirmation of the pension input into the defined benefit scheme is: Tax year Pension input Annual allowance Unused allowance Cumulative carry forward available 2008/2009 £25,000 £50,000 £25,000 N/A 2009/2010 £62,000 £50,000 £0 N/A 2010/2011 £30,000 £50,000 £20,000 N/A 2011/2012 £70,000 £50,000 (£20,000) £45,000 2012/2013 £40,000 £50,000 £10,000 £20,000 2013/2014 £85,000 £50,000 (£35,000) £30,000 In 2011/2012, there was £45,000 unused allowance available. The pension input was £20,000 in excess of the annual allowance for 2011/2012 and has therefore used up £20,000 of the unused allowance from 2008/2009. The remaining £5000 unused allowance from 2008/2009 is lost for future tax years and the £20,000 unused allowance from 2010/2011 can be carried forward to 2012/2013 and if not used up to 2013/2014.In 2013/2014, there was £30,000 unused allowance available made up of £20,000 unused allowance from 2010/2011 and £10,000 from 2012/2013. The pension input was £35,000 in excess of the annual allowance for 2013/2014 and therefore uses up the £20,000 unused allowance from 2010/2011 and the £10,000 unused allowance from 2012/2013. There is still an excess of £5000 on which an annual allowance tax charge will be payable. There is no carry forward available for 2014/2015. Information requirements From tax year 2011/2012 scheme administrators must provide annual allowance information if individuals request it. If an individual’s pension input to a pension scheme is greater than the annual allowance then the scheme administrator must provide details of the pension input to the scheme and the annual allowance for the tax year and each of the three previous tax years. This information must now be sent by the next 6 October following the tax year. For 2011/2012 this didn’t need to be done until 6 October 2013. If an individual asks for annual allowance details the scheme administrator must provide it within three months, or by 6 October following the tax year if this is later. Annual Allowance Charge If the pension input exceeds the annual allowance and any carried forward unused allowance then there is a tax charge of up to 45% on the excess. The amount payable depends on the rate of income tax that an individual would pay if the excess amount was included in their taxable income as the top slice of that income. The chargeable amount is 20% on any excess that falls into the basic rate tax band 40% on any excess that falls into the higher rate tax band 45% on any excess that falls into the additional rate tax band Where a relief at source pension contribution, usually to a personal pension, or a gift aid payment has been made in the tax year the basic rate tax band is extended as normal. Example Laurent earns £150,000 and as a result of contributions he has made to his personal pension and the increase in the value of his current employer’s defined benefit arrangement he has £32,000 excess pension saving on which the annual allowance charge is due. Laurent’s contribution to his personal pension was £20,000 gross which means his higher rate and additional rate thresholds are extended by £20,000. His additional rate threshold would therefore start at £170,000. Adding the £32,000 excess to Laurent’s earnings means that £20,000 of the excess will fall below his additional rate threshold and therefore be subject to 40% tax and the remaining £12,000 will be in excess of the additional rate threshold and be subject to 45% tax. Laurent’s annual allowance charge will therefore be £13,400 (£20,000@40% + £12,000@45%). The charge payable is the same whether a contribution is paid to an occupational pension or a personal pension. Paying the Charge The annual allowance charge is normally paid through self assessment. If an individual who does not complete a tax return incurs a liability then they should contact their tax office. The charge is payable even if the individual is not resident in the UK. The charge can sometimes be paid out of pension benefits. This has been allowed since tax year 2011/2012. Pension schemes can choose to offer this but they only have to pay the charge on an individual’s behalf if The charge is over £2000 The pension input to that scheme was greater than the annual allowance, and The individual chooses to have the scheme meet the charge from their pension benefits. The individual must choose to have the scheme to pay the charge by 31 July in the year following the end of the tax year the charge relates to. This means for a charge due for 2013/2014 the individual must make the decision for the scheme to pay by 31 July 2015. The individual can only require that the scheme pays the charge on any excess over the annual allowance which occurred under the scheme. If the scheme pays then the individual’s pension benefits are reduced. In DC schemes the individual’s fund value is reduced by the amount of the charge. In DB schemes the member’s pension rights are reduced actuarially. Pensions in payment can also be reduced actuarially to pay the charge but GMP benefits cannot be reduced so in some cases the scheme may not be able to meet the liability.