Emergency Budget 2010: PensionsWednesday, June 23rd, 2010
Basic State Pension
The Government confirmed its commitment to review the basic State Pension each year by the highest of earnings, prices or 2½% from April 2011. The Consumer Price Index (CPI) will be used as the measure of prices, consistent with the Government’s decision to index all benefits and tax credits by the CPI. However, the basic State Pension will increase by at least the equivalent of the Retail Prices Index (RPI) in April 2011 to ensure its value is at least as generous as under previous up-rating rules.
State Pension Age
The State Pension Age is currently set in legislation to increase to age 66 for both men and women starting in April 2024. The Government intends to make that change earlier and will review how best to manage future increases to the State Pension Age.
The Government will also consult shortly on how it will phase out the Default Retirement Age from April 2011.
The Emergency Budget includes an announcement that the Government is considering restricting pensions tax relief from 6 April 2011 by reforming the existing pension savings allowances, principally by means of a significant reduction in the annual allowance, currently £255,000 per annum. The Government will discuss the changes with interested parties but provisional analysis suggests that the level of a reformed annual allowance may be in the region of £30,000 to £45,000.
The reformed allowances would replace the high income excess relief charge, which is currently due to come into force on 6 April 2011. The legislation for the high income excess relief charge legislation will be repealed.
Removal of latest annuity age
The Government has announced that, with effect from 2011/12, it will end the requirement for members of registered pension schemes to purchase an annuity by age 75.
As an interim measure, members of registered pension schemes who reach age 75 on or after 22 June 2010 will not be required to buy an annuity or otherwise secure a pension income until they reach age 77. This will enable such members to defer their decision on what to do with their pension savings until the new rules are finalised in 2011.
National Employment Savings Trust (NEST)
NEST is an independent pension scheme run by the NEST Corporation, a non-departmental public body accountable to Parliament. It will be used by many employers to meet their statutory obligation to provide an automatic enrolment pension scheme from 2012.
The current tax rules mean that NEST would not be able to register with HMRC for tax purposes. A pension scheme can only be registered for tax purposes if it is an occupational pension scheme, a public service pension scheme, or a pension scheme that is permitted to establish a personal pension scheme or stakeholder pension scheme.
The change will allow NEST to be treated as an occupational pension scheme for registration purposes, allowing members of NEST and contributing employers to benefit from the tax reliefs available to registered pension schemes on contributions and investment growth. NEST will also be subject to the same tax rules as other tax-registered pension schemes.