The start of the new tax year on 6 April marks several important changes to pensions.
If you are currently contracted out of the state second pension (S2P) through a personal pension or a money purchase occupational scheme, your contracting out will end automatically on 5 April 2012. The funds built up in your private pension arrangement will remain, but from 6 April you will start to accrue S2P. As with other state pensions, S2P is not payable before your state pension age (SPA) – see below – and normally has no lump sum element.
National insurance contributions (NICs)
If you are contracted out via your employer’s occupational scheme, then your (and your employer’s) NICs bill is set to rise from April. For final salary schemes, the employee NICs rebate for contracting out will fall from 1.6% to 1.4%. For money purchase schemes, the rebate will disappear completely because contracting out will have ended. If you have a personal pension, your NICs rates will not change.
The standard lifetime allowance, which normally sets the maximum tax-efficient value of pension benefits, will fall from £1.8 million to £1.5 million. If you have existing primary or enhanced protection, the reduction will have little, if any effect. However, if you have no protection, then you may need to consider the option of claiming fixed protection, which was
introduced last year.
Broadly speaking, fixed protection allows you to keep the £1.8 million lifetime allowance, but only if no further contributions are made to your pension arrangements and you accrue no more benefits. A claim for fixed protection must be made by 5 April 2012. If you think it might be relevant to you, please contact us as soon as possible.
Two other aspects of pensions were the subject of announcements late last year, but their impact will be longer term.
State pension age (SPA)
The phasing of the increase in SPA to 66 was changed in a last-minute amendment to what was then the Pensions Bill and is now the Pensions Act 2011. The adjustment means that the maximum increase in SPA any woman will face in 2020 is 18 months, rather than the 24 months previously proposed.
Some men will also see their SPA brought forward marginally from the original plans. You will only be affected by these adjustments if you were born between 6 April 1954 and 5 October 1954.
Shortly after the Pensions Act had been passed the Chancellor, George Osborne, announced in his Autumn Statement that the timing of the next increase in SPA (to 67) would be accelerated. Instead of taking place between April 2034 and April 2036, the increase will now be introduced eight years earlier, between April 2026 and April 2028.
Mr Osborne also said that future increases to SPA would ‘be based on demographic evidence’, which suggests the currently scheduled rise to 68 between 2046 and 2048 will actually occur much sooner.
In late November, the Department for Work and Pensions announced that the start date for auto-enrolment into pension arrangements for small employers would be put back by 13 months, to May 2015. The full 8% rate of contributions is now likely to apply from October 2018, one year later than previously planned.
For more information and advice on these changes, please contact us.