This afternoon saw the first Budget from the Coalition government and its new Chancellor of the Exchequer, George Osborne. This LawNow sets out some of the highlights from the despatch box which impact on the world of pensions.

Pensions tax relief and high earners

The Chancellor announced that the existing plans for a high income excess relief charge, which would reduce tax relief from 2010/11 on pensions contributions for those earning in excess of £150,000, are to be shelved. Instead, he will "work with industry on alternative ways of raising the same revenue, potentially by reducing the Annual Allowance". This is a radical policy shift, suggesting that he has been listening closely to concerns raised by the NAPF and others.

The Government's provisional analysis is that the annual allowance, currently set at £255,000, could be drastically reduced to a level of around £30-£45,000, although this may require amendments to other aspects of the existing tax regime: any final agreed level of annual allowance would "be influenced by a number of policy design features in the revised regime, including the appropriate level of the lifetime allowance". The Government will be consulting on what would be appropriate. However, its overriding aim in doing so will be to ensure that its new regime for clawing back pensions relief from high earners raises at least the same amount of revenue as the former Government's proposals.
 
Note that at present no further changes are proposed to the interim "anti-forestalling regime", which currently applies up to and including 5 April 2011 for those earning over £130,000.

Compulsory annuitisation

The Government is to increase the latest age by which members of registered pension schemes have to buy an annuity, or otherwise secure a pension income, from age 75 to age 77. This change will be effective from tax year 2011/12. However, a transitional regime, effective from today, will permit those who have not already reached age 75 to defer receipt of their benefits to age 77. The Government says that it will consult shortly on the detail of its changes in this area.

Other issues

The Queen's Speech had already announced certain measures relating to pensions, such as a scheme for the payment of Equitable Life compensation, and a review of the proposed timetable for increasing state pension age. Further details in these areas are awaited.

Today's speech confirmed that the rate of the basic state pension will be re-linked to earnings from April 2011 and will rise each year in line with the higher of earnings, prices, or 2.5% per annum. In addition, as previously announced, there is to be a formal review of public sector pensions, under the chairmanship of former Labour Work and Pensions Secretary John Hutton.

Finally, today's announcements contain no meaningful clues as to the future of auto-enrolment and the National Employment Savings Trust ("NEST"): this is not perhaps surprising, given that the Government has already indicated that a number of NEST's key features are under review, with the results of that review still expected this autumn.

In summary

The emergency Budget flags key areas of the pensions regime on which the new administration wishes to stamp its mark. Trustees and employers will await with some interest the detail of the promised consultations on the main areas of change.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 22/06/2010.