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Major changes to pensions tax allowances need careful consideration and communication
The chancellor of the exchequer delivered his Spring Budget on 15 March 2023. For pensions, the key announcements were as follows.
Pensions tax allowances
To encourage workers over the age of 50 to extend their working lives, "help ensure that high skilled individuals such as NHS clinicians are not disincentivised from remaining in the workforce" and to simplify pensions tax, the government will legislate in the Spring Finance Bill 2023 to:
The government will also introduce secondary legislation to ensure that, from April 2023, "open and closed public service pension schemes for a given workforce will be considered linked for the purposes of calculating Annual Allowance charges, thus allowing members to offset any negative real growth for Annual Allowance purposes in legacy public service pension schemes against the Annual Allowance".
Long-term investment
There were a number of announcements directed at developing "the next generation of globally competitive companies that grow and list in the UK, and to bolster … retirement incomes" .
The government will "work closely with industry and regulators to bring forward an ambitious package of measures by the autumn" to unlock "defined contribution (DC) pension fund investment into the UK’s innovative firms".
More immediately, the government:
Other changes
To support people with planning for later life, the government will expand "the midlife MOT Jobcentre Plus offer to reach more 50+ claimants through support sessions; improving the digital midlife MOT tool; and working with employers and pension providers to encourage signposting to the midlife MOT and related support".
The government will also "legislate in a future Finance Bill to improve the administration of pension tax relief. This will enable the digitalisation of the current paper processes for Relief at Source, improving the experience for pension scheme administrators and reducing errors" … "Draft legislation will be published for consultation in summer 2023".
And the government will legislate "in Spring Finance Bill 2023 to address the pensions tax and corporation tax consequences of write-downs of liabilities of insurers in financial distress under the proposed new section 377A Financial Services and Markets Act 2000, and any subsequent court-ordered variation or termination of those write down-orders" (see policy paper).
Measures announced in July 2022
The Budget documents confirm that, in addition to the matters discussed above, the Spring Finance Bill 2023 will legislate for a number of measures announced on 20 July 2022:
Where can I find out more?
More information about these changes can be found in the overview of tax legislation and rates, pensions tax limits policy paper, and HMRC pension schemes newsletter 148.
The Finance (No.2) Bill, explanatory notes to the Bill (which include statements about the effect of the proposed amendments to the fixed and enhanced protection provisions), together with related Budget resolutions have also now been published.
Osborne Clarke comment
The changes to the Lifetime and Annual Allowance are welcome. They should make it easier for members to save and help to simplify some pension projects where fixed and enhanced protection have traditionally been a barrier or raised additional considerations.
For pension scheme trustees and employers, the changes raise a number of practical points and questions. Trustees and employers need to agree with their advisers what they can and will say to members, and what action (if any) they might like to take in relation to open cases. They need to consider how the changes affect any policies in place for higher earners/employees with long service periods and the rules of their pension scheme. They also need to be ready for questions from members.
Questions they might expect to see include:
It is worth remembering that the current Finance Bill does not provide for abolition of the Lifetime Allowance. This is due to be included in a future – presumably the spring 2024 – Finance Bill. In addition the Labour Party has said that it would reinstate the Lifetime Allowance if it is elected at the next general election so the budget may not be the last word on these issues.
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