Pensions and the coalition – what we know and what we don’t!
Yesterday’s fleshed out coalition agreement contained a number of measures that will affect pensions but the key issue that has not been mentioned since 6th May is the one that is focusing the attention of HR Directors – what is happening to pensions’ tax relief for high earners?
We were all working to the Labour plans to reduce tax relief to 20% for those with income above £180K, with even those with income of £130,000 at risk too. With pension saving a tax inefficient option for such individuals the move has been to look at CGT related options such as shares and corporate ISAs. Now we are plunged back into uncertainty with CGT on the increase and no clear steer on tax relief – let’s hope we know more on 22nd June.
What was in yesterday’ agreement was:
- Confirmation that the default retirement age will be phased out, not just increased – will that hamper your successional plans?
- Confirmation that the state pension age will rise to 66 – this is less ambitious than Labour who had already set a timetable for a rise to 68 for both sexes by 2046
- Abolishing compulsory annuitisation at 75 i.e. being forced to trade in your pension pot for a pension – this is controversial, as is allowing individuals to dip into their personal pension funds early. The reason we have a 25% cap on lump sums in the UK is to avoid the situation in countries like the US where individuals can cash in all their funds and then find as we are all living longer they have to go back to work or rely on the state
- Auto-enrolment is here to stay. Both parties recognise that the 9m non-pension savers have to be ‘encouraged’ to start looking toward funding their extended old age, but it’s certainly not clear that the NEST scheme or the contract awarded to Tata Consultancy to run the scheme (they were the only bidder in the end!) will survive in its current incarnation
- A commission will look at the political hot potato of the affordability of public sector pensions
- Restoring the link between state pensions and earnings will be brought forward to 2011 – a year earlier than Labour had said, and 3 years earlier than the Conservatives had previously promised
Kate Upcraft
Payroll writer and lecturer
ISIS Support Services Ltd
