The Pension Reforms
Asset TV Pension Masterclass
With huge changes taking place in the pension market Stan Russell, Prudential's Pension Business Development Manager, Adrian Boulding, Pension Strategy Director at Legal and General and Steve Latto Head of Pension from Alliance Trust Savings, assess the long term trends and what this means, for advisers and their clients.
Listen to the panel debate:
- Auto enrolment and NEST
- The need for guarantees in pension planning
- The tax benefits of pensions against other long-term saving vehicles
- The role of Flexible Drawdown in pension planning
The advice opportunities for advisers
Pension Reform in Brief
In 2010 the Government consulted on range of proposals to change the current pensions regulations. Final rules will appear in the Finance Act 2011. Collectively we refer these as the 'Pension Reforms'. The following is therefore subject to change and is based on our understanding of these new regulations.
The main measures announced are:
The annual allowance will reduce to £50,000 from the current limit of £255,000. High earners that were previously restricted by anti forestalling measures will be able to contribute up to this new limit. In addition new carry forward allowances will help reduce the number of members who breach the reduced limit but where a tax charge is unavoidable, individuals will be able to pay tax liability from existing pension savings.
The lifetime allowance will also reduce to £1.5m in April 2012 from its current limit of £1.8m. Individuals who have been funding to the higher measure will be able to protect their existing funds.
Individuals will no longer be required to buy an annuity with their money purchase funds at age 75.
Changes to the existing unsecured pension rules will come into effect in April. These include allowing individuals to draw down unlimited pension savings where they can demonstrate they meet a guaranteed minimum income level.
Schemes will be able to pay certain lumps sums (such as tax free cash, serious ill health and trivial commutation) to members aged over 75.
The tax rate for all lump sum death benefits paid from pension schemes will be set at 55%. The exception will be death benefits for those who die before age 75 without having taken a pension, which will remain tax free.
The state pension age for males and females will rise to age 66 between 2018 and 2020. This will affect the increase to 65 of female state pension ages which was originally planned to complete by 2020 but which will now be completed by 2018.
The Government will bring forward proposals to manage future increases in the State Pension Age more automatically in response to increases in longevity, through a regular independent review of the implications of longevity changes.
The Government will also reform the state pension system for future pensioners so that it provides simple, contributory, flat-rate support above the level of the means tested Guarantee Credit.
From 2012 CPI will be the official default indexation for all National Insurance contributions rates, limits and thresholds. However the secondary threshold will be over-indexed when compared to CPI and will continue to rise by the equivalent of RPI from April 2012 until 2015-16.
Legislation will be introduced in Finance Bill 2011 to allow index-linked gilt-edged securities whose return is calculated by reference to any index of prices issued by the Office for National Statistics to be taxed in the same way as RPI linked Gilts should the Government decide to introduce such types of security.
New advice opportunities - tax relief and new retirement options
The changes to pensions tax relief and retirement options alone create significant opportunities for advice.
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