Pensions in the Budget 2013

David Farmer, Pensions Partner, Olswang

Have pensions savers been hit hard again?

Pensions tax relief has been the target of attack in previous budgets – the annual allowance (the amount you can save into a pension annually without paying tax) has been dramatically cut back form £255,000 to £40,000 in the past couple of years.  Also the lifetime pension allowance was cut in last year’s Autumn Statement from £1.5 million to £1.25 million.

But this year there will be no further erosion of the tax relief available for pensions savers.  In fact the Government will offer an individual protection regime, in addition to the fixed protection regime, for individuals affected by the reducing lifetime allowance. The Government will consult on the detail of this new protection in Spring 2013. 

The new state pension and contracting out – higher NICs?

Also with the advent of the new flat-rate state pension (which will now come in a year early in 2016) the facility for occupational pension schemes to contract out of the state pension system will stop.  It had been expected that employees would simply have pick up the consequential increase in NI contributions with no additional pension benefits.  However, the chancellor announced in the Budget that the additional NI contributions will now secure extra state pension.

Help for companies struggling with pension scheme deficits?

Currently many organisations are struggling with ballooning pension deficits and the regulatory regime which governs how these are paid for by companies.  In response, the Government will provide the Pensions Regulator with a new objective to support scheme funding arrangements that are compatible with “sustainable growth” for the sponsoring companies.  Essentially the Regulator will have to take into account the “growth prospects” of employers when considering pension scheme.  However details on this new objective will not be published until Spring 2013 and it remains to be seen if this will provide a meaningful addition to the current funding regime which already addresses reasonable affordability for companies. 

SIPPS may be able to participate in more property investments

Current legislation heavily regulates the types of property investment that self invested personal pensions can invest in.  In particular, there can be particularly severe tax consequences for investment in residential property.  However, in this Budget the Chancellor announced that the Government will explore whether the conversion of unused space in commercial properties could be an allowable investment. 

More Equitable Life customers to get compensation

The Chancellor announced in the Budget that Equitable Life compensation scheme will now be extended to cover customers who held with-profits policies before 1992.  These policy holders will now be awarded £5,000 each and there will be extra £5,000 for pensioners claiming pension credit.

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