The Chancellor of the Exchequer delivered his 2015 Budget speech in the House of Commons yesterday – the last Budget speech before May’s general election. The speech included a few pensions-related points, some of which were expected as they had been previously announced or reported in last weekend’s national press.
Lifetime Allowance (LTA)
Individuals’ pension savings above the LTA at the point they are drawn (crystallisation) are subject to significant additional tax charges. With effect from 6 April 2016, the LTA will reduce again from £1.25m to £1m. This will be the third time since April 2012 that the LTA has been cut.
The reduction to the LTA will be legislated for in the next Finance Act, and transitional protection is expected to be put in place for individuals whose savings exceed £1 million by next April. However, no details on these protections are yet available – the Government intends (subject to the outcome of the next general election) to consult on the arrangements at a later date.
The good news, however, is that the LTA is expected to rise in line with Consumer Prices Index (CPI) inflation from April 2018.
The Department for Work and Pensions (DWP) and the Treasury have launched a consultation on ‘Creating a Secondary Annuity Market’, which would allow individuals to sell on their annuity income to a third party, in return for a cash sum or re-structured retirement income. This development is intended to extend the ‘Freedom and Choice in pensions’ reforms announced in the 2014 Budget to individuals who have already retired.
However, the Government has made it clear that annuity policies held in the name of trustees within occupational pension schemes will not be assignable in this way.
Individuals who wish to sell on their annuity income will have to gain consent of the annuity provider, and will not be able to sell back to the original provider. The proceeds may be in the form of a lump sum, a drawdown arrangement or a flexible annuity policy, and will be taxed as income.
Other pensions issues
The Treasury has confirmed that employer-funded advice provided to members transferring defined benefit (DB) pensions to defined contribution (DC) arrangements will not be taxed as a ‘Benefit-in-Kind’ and will also not be subject to National Insurance. It has also announced that additional funding will be made available for Pension Wise – the Government’s information service for individuals retiring from DC pension schemes.
Whilst the three main political parties have now signalled their intention to reduce the LTA, the outcome of the General Election on 7 May 2015 could yet affect whether some of the proposals announced by the Chancellor are introduced.