The method of valuing defined benefits for annual allowance
purposes will be a fixed rate multiplier of 16 – as
opposed to the current multiplier of 10 – meaning that a
£1,000 increase in annual pension benefit is now treated as
being worth £16,000, instead of £10,000. Broadly
speaking, annual increases in pension benefits are measured by
comparing the value of the pension which would have been payable at
the start, and end, of the year. Deferred members will be exempt,
and the Government also says that it will include an allowance for
revaluation of accrued rights for active members.
In addition, the carve-out from the annual allowance, which
currently applies in the year the benefits are taken, is to be
abolished, although there will be exemptions for serious (terminal)
illhealth and death. There will be further consideration of an
exemption for other cases of 'major' ill-health. However,
the Government has rejected calls for further exemptions for
redundancy or for members claiming enhanced protection.
There will be a new facility so that, where a member does exceed
the annual allowance in any given year, unused allowance from up to
three previous years will be available to offset against excess
pension savings. It is hoped that this will mitigate the risk of
members on lower to moderate incomes being caught by oneoff
'spikes' in accrual. Carry-forward will be available
against an assumed annual allowance of £50,000 for the tax
years 2008/09, 2009/10 and 2010/11.
Any benefits above the annual allowance would not be taxed at a
fixed rate, but at a rate tailored to recoup the full marginal rate
income tax relief that the member has benefited from.
Lifetime allowance changes
The lifetime allowance, the maximum level of benefits that a
member can draw from all registered pension schemes without
incurring penal tax charges, is currently set at £1.8m, but
is to be reduced to £1.5m.
However, the Government is minded to do this only from 6 April
2012, recognising that before then it needs to consider ways of
protecting individuals who have already made saving decisions based
on the higher existing level.
Helpfully, the 'trivial commutation lump sum' will be
de-linked from the lifetime allowance so that the maximum will
remain £18,000, rather than fall to £15,000.
EBTs and EFRBS
The Government has stated that employee benefit trusts (EBT) and
employer financed retirement benefit schemes (EFRBS) are to be
"no more attractive than other forms of remuneration".
The draft legislation for the Finance Bill 2011 is designed to
ensure that income tax and national insurance contributions (NICs)
on employment income are not avoided or deferred through the use of
trusts or other intermediaries, including EBT's and EFRBS. This
is in keeping with the changes to the pensions tax regime from
The legislation will have effect on and after 6 April 2011 and
apply to rewards which are earmarked for an individual employee or
otherwise made available on and after that date. In addition,
anti-forestalling provisions apply to the payment of sums and the
provision of readily convertible assets for the purposes of
securing the payment of sums (including loans) where the sum is
paid or the asset is provided between 9 December 2010 and 5 April
2011 where, if paid or provided on or after 6 April 2011, they
would be caught by the legislation.
The changes in child benefit and its removal for higher rate
taxpayers may have a significant effect on a number of employees. A
possible solution would be to offer employees salary sacrifice for
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In October 2012, the Court of Appeal confirmed that a Service Provision Change ("SPC") TUPE transfer can only occur where the client who receives the service, before and after the change, remains the same (Hunter v McCarrick  EWCA Civ 1399).
Following much debate, on 24 April 2013 the House of Lords finally gave its approval to employee shareholder status which will now take effect from Autumn 2013.
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