TaxPersonal TaxNine pension rules and legislation tweaks in Budget

Nine pension rules and legislation tweaks in Budget

Tweaks rather than overhauls for pensions

PENSION TAX RELIEF, tax-free lump sums and the annual allowance remained unchanged in the Budget, much to the relief of the pensions industry.

However, a number of legislative confirmations and crackdowns that didn’t make it into George Osborne’s speech were confirmed in supporting policy documents, according to sister publication Professional Pensions.

• Qualifying Recognised Overseas Pension Schemes (QROPS)
Government will change primary legislation to strengthen reporting requirements and powers relating to QROPS, backing changes in secondary legislation published for consultation on 6 December last year.
Government also announced it will exclude relevant types of pension scheme from QROPS in countries which actively breach the rules.

• Contributions paid to spouses or family members
Government will legislate to ensure that arrangements where an employer pays a pension contribution into a registered pension scheme for an employee’s spouse or family member as part of their employee’s flexible remuneration package cannot be used to obtain tax and NIC advantages for the employee or the employer.

• Small pot commutation
Confirmation of last year’s Autumn Statement position – Government will extend pension tax commutation rules to allow people over 60 to commute pension pots of £2,000 or less held in personal pensions, regardless of their other pension savings.
This can be done a maximum of two times.
Draft legislation was published for consultation on 6 December 2011, final legislation will take effect from 6 April 2012.

• Unfunded workplace pension arrangements
Government “ready to act as necessary” to prevent the creation and use of unfunded workplace pension schemes. The move is part of its restrictions on pension tax relief which have already been implemented.

• Lifetime Allowance
Regulations will be laid to ensure the rules government fixed protection work as intended.
The Finance Act 2011 reduced the lifetime allowance of pension saving to £1.8m to £1.5m
to help restrict the cost of pension tax relief.

• Annual Allowance
Technical amendments to the Finance Act 2011 – which cut the annual allowance from £255,000 to £50,000 for the 2011-12 tax year – will be made to ensure the rules surrounding scheme pays (where a scheme pays out any tax liability incurred) and deferred members work properly.

• Contracting-out
Pension tax legislation will be amended cut out tax relief on employee contracted-out contributions to defined contribution (DC) schemes. It will align tax legislation with the Department for Work and Pensions legislation which abolishes contracting-out from 6 April.

• Asset-backed pension contributions
Rules on asset-backed contributions to occupational defined benefit (DB) schemes will be tightened.

• Bridging pensions
Government will legislate to align the tax rules on the payment of bridging pensions with forthcoming DWP changes to the state pension age.

 

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