Treasury consult on tax relief for pension contributions

Looks like the annual contribution allowance of £255k pa will be phased out in favour of a simpler but less generous limit of £30k - £45k per annum. The treasury will also consider the complicated issue of valuing defined benefit pension schemes. The changes are most likely to be implemented from April 2011.

Counting the cost of following fund fashions

Interesting article from The Telegraph. Why you can't always believe the Investment Manager's hype. 

International Adviser :: The Overseas Pension launches online tracking tool

International Adviser :: The Overseas Pension launches online tracking tool

NS&I (National Savings and Investments) makes changes to product range

• NS&I withdraws Savings Certificates from general sale

• Interest rates on NS&I Direct Saver and Income Bonds reduced

NS&I (National Savings and Investments) has withdrawn from general sale its current Issues of Savings Certificates (both Fixed Interest Savings Certificates and Index–linked Savings Certificates). The interest rates on the NS&I Direct Saver and Income Bonds have also been reduced by 0.25% with immediate effect.

Government launches consultation on removing requirement to annuitise by 75

Financial Secretary to the Treasury, Mark Hoban MP, yesterday announced the start of an 8-week consultation on removing the effective requirement to annuitise by age 75, following the announcement in the June Budget that these rules will end from April 2011

The consultation document sets out proposals that will simplify the treatment of retirement savings and reduce complexity for individuals as well as for pension and annuity providers. The reforms will give individuals greater flexibility to choose the retirement options that are best for them, with more choice over how they can provide a retirement income for themselves.

From April 2011, there will no longer be a specific age by which people effectively have to annuitise. This will give people who wish to buy an annuity greater flexibility in the timing of their annuity purchase. The Government will also create more flexibility for people who do not wish to buy an annuity. USP currently allows individuals to take a tax-free lump sum at the beginning of their retirement if they wish, keeping funds invested in a tax-exempt environment while drawing down an income from their remaining pension pot in line with their needs, subject to a prudent drawdown limit. The Government will allow capped drawdown - equivalent to USP extended beyond age 75 - for the whole of an individual’s retirement. This means that individuals will be able to choose how much to draw down annually from their pension pot throughout their retirement (subject to a capped limit), or whether to draw any income at all.

The Government will go further than capped drawdown by creating additional flexibility for individuals who wish to draw down more than the capped annual limit. Under this flexible drawdown model, individuals will be able to draw down unlimited amounts from their pension pot, provided that they can demonstrate that they have secured a sufficient minimum income to prevent them from exhausting their savings prematurely and falling back on the state. The requirement to demonstrate a minimum income will apply at the point at which an individual wants to exceed the annual capped drawdown limit. The Government wants to ensure that the requirement to secure a minimum income is transparent and fair and can be implemented without undue complexity or burdens on individuals or business.

Both capped and flexible drawdown will increase flexibility for private pension savers before and after age 75. This will make it unnecessary to continue to offer ASP as an option after age 75. ASP will therefore cease to exist when new rules come into effect. The new capped and flexible drawdown limits and rules will apply to existing members of ASP from April 2011.

Further detail on proposed tax charges will be published in draft legislation later in the year.

The consultation document Removing the requirement to annuitise by age 75 is available on the HM Treasury website via this link. Responses to the consultation can be sent to: age75@hmtreasury.gsi.gov.uk. The consultation period started yesterday and closes on the 10 September 2010. Draft legislation for the reforms will be published in the autumn.

Emergency Budget "Highlights"

Following last month’s Emergency Budget, we have put together some observations and planning points related to pensions, based around the following areas:

- Why put money into pensions

- Why do it now rather than later

- How do the new rules affect those taking pension benefits

Our Pensions Team can advise on  these and a wide range of other pension and pension-related issues.  Please feel free to contact us.

Why put money into pensions

- Capital Gains Tax (CGT) changes

CGT has increased from 18% to 28% for higher rate taxpayers. Investments held within a pension are exempt from CGT, so this strengthens the argument to invest via pensions rather than personally.

- Accelerated Increase to State Pension Age

The move to age 66 for the State Pension has been accelerated (April 2016 for men and April 2020 for women); as State Benefits diminish, the need for private provisions increases.

- Pension contributions for those with earnings between £100,000 and £130,000

Individuals with earnings in this bracket will see an effective rate of tax relief of up to 60% on personal pension contributions.

- Pension contributions for those with earnings between £130,000 and £150,000

Those with earnings in this bracket can make a pension contribution and mitigate anti-forestalling measures, which restrict the tax relief on the contribution. You can reduce relevant income by up to £20,000 by making a personal pension contribution potentially removing you from the restrictions altogether.

Why make contributions now rather than later

- Restrictions to higher rate tax relief

These had been mooted, but have been rejected. Instead, the proposal is that the Annual Allowance (currently £255,000) will be lowered to around £30,000-£45,000 per annum from April 2011. There is a window of opportunity for those with income levels above £30,000 but below £130,000, to make significant contributions that are above the new proposed annual allowance between now and next April.

Rules affecting retirees and those about to retire

- Under 55, in Unsecured Pension (USP) and considering a transferring your pension?

HMRC had ruled that those over 50, but under 55, who had entered USP could transfer to another USP scheme without this being treated as an unauthorised payment. However, the ruling said that any income drawn after such a transfer and taken before age 55 would be an unauthorised payment.  HMRC have just issued an announcement confirming that they will introduce legislation, backdated to 6 April 2010, to allow those in USP to transfer and draw income without penal taxes applying.

- Reaching (and going beyond) age 75

The requirement to secure an income e.g. buy an annuity or use Alternatively Secured Pension provisions by age 75 has been scrapped. New rules will be introduced; in the meantime anyone who turns 75 on or after 22 June 2010 can defer their decision until the rules are finalised.

Pension death benefits for anyone in unsecured pension age 75-77 will be treated the same as the under 75s, i.e. a taxable dependent's pension can be taken from the fund or a lump sum less 35% tax. Note that there are still actions to take by age 75 so it is not a question of “doing nothing”.

Marc Stemmer joins REFP

Marc Stemmer studied Law and Politics at Guildhall University graduating in 1996.

He spent several years with city institutions ABN AMRO and JP Morgan Chase where he had roles in management and trading and investment positions on a convertible bond desk.

In 2005, Marc joined Hurst Independent Financial Services in the niche area of new build property finance before moving to M&N Insurance Service Ltd where he ran their mortgage and financial insurance department. In June 2010, Marc joined Re-Financial Planning where he is involved in Business and Financial  Protection in addition to tax and retirement planning. Marc has attained all the requisite qualifications in this area to date.