It had to happen I suppose. The luxury of sitting, discussing and trying to make sense of all the recent pension and related consultations is now over. Now for the reckoning - the responses!
Just for the record we have had:
- The consultation on tax relief.
- The consultation on age 75 and annuitisation.
- The consultation on changing the state pension age.
- The consultation on phasing out of the default retirement age.
- The review of auto enrolment and National Employment Savings Trust.
- The review of public sector pensions.
- The Department for Work and Pensions (DWP) consultation on contracting out.
- The European Union Green Paper on pensions.
Forgive me if I have forgotten anything, but I think that’s enough to be going on with anyway!
We have just had the response on the tax relief consultation and for anyone who has missed it, here are the headlines:
- The annual allowance will be reduced from £255,000 pa to £50,000 pa in 2011.
- Tax relief on the contribution paid will be at the payer’s marginal rate.
- The lifetime allowance will be cut from £1.8m to £1.5m in 2012.
- Any unused annual allowance will be able to be carried forward for three years.
- The defined benefit conversion factor will be 16.
- Any tax charge that falls on a defined benefit (DB) or defined contribution (DC) scheme member should be payable from the scheme.
I won’t go into the full detail here, but the reason I mention it is that many of the headlines seem to show that the government has listened to the responses received from the industry.
The level of the reduced annual allowance, the fact that there is a limited carry forward of unused relief, the restoration of full tax relief and a softening of the effect on the DB regime all differ from the consultation and will reflect comments made by the industry.
The one point that has attracted some negative comment is the reduction in the lifetime allowance from £1.8m to £1.5m, in effect a tax on investment performance with a restricted annual input and is likely to lead to some complex transitional rules to address those funds close to the limit. It does however appear that we have until 2012 to address this.
It also seems that we have at least confirmation of the result of some of the other consultations, even though we await the details. The Comprehensive Spending Review 2010 assisted us in this, with some of the high level detail.
Firstly, we appear to have reached some sort of conclusion on immediate changes to the State Pension Age (SPA). In June 2010, the DWP issued ‘a call for evidence’ around the increase in SPA. The Labour Government had specified that an SPA of 66 would be phased in between April 2024 and April 2026, and in the Spending Review, this has been accelerated by the Coalition so that the SPA will be 66 from April 2020.
Secondly, it was also announced that certain members of unfunded public sector pension schemes will see their personal contributions increase from 2012/13 with HM Treasury projecting additional contributions of £1.8bn by 2014/15, equivalent to an average 3% rise in contributions. Further detail will emerge in the Hutton review.
Finally, the Spending Review included money for the DWP to introduce auto enrolment and the introduction of NEST from 2012, this at least seems to suggest some progress.
The increase in State Pension Age leads us to assume that the consultation on phasing out the default retirement age will be successful – it would seem illogical for employers to be able to enforce retirement at age 65 when it is not possible to access state benefits until an age after 65.
This leaves a couple of others, with the big one being the Age 75 Consultation. I know there have been a lot of constructive comments and detailed work done on the responses to this consultation and the response is eagerly awaited. I am therefore hopeful that we will get a pragmatic response although time is running out if, as an industry, we are to implement a new regime in time for next April.
So, piece by piece, the bigger picture is being revealed. Will it be simple? Will it encourage saving? Will it solve the pension crisis? We can only wait and see!
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