New lower limit on tax relief for 45% payers
The Conservative party manifesto committed it to reducing the tax relief on pension contributions for individuals earning more than £150,000 – to pay for a new inheritance tax allowance for individuals' main residences.
There has been speculation that the restriction will work by gradually reducing the individual's annual allowance, currently a maximum of £40,000, by £1 for every additional £2 of income to a minimum allowance of £10,000 a year. Contributions in excess of the annual allowance will trigger a tax charge at the individual's marginal rate – effectively withdrawing the tax relief on the excess contribution.
For high earners who are members of defined benefit schemes, such proposals are likely to lead to an annual allowance charge every year although it is possible to elect for this to be paid from the pension fund. It is expected that the legislation will incorporate anti-avoidance provisions to cater for salary exchange arrangements involving pensions. Special rules may also be required to address 'pulsing' of bonuses so that, in alternate tax years, the individual has income just below the £150,000 limit one year and income significantly above the limit in the next.
Due to these potential complexities, it is perhaps unlikely that this change will take effect from 8 July 2015, the date of the summer Budget, but that cannot be entirely ruled out. Whenever and however a change is introduced, the position for senior employees will need to be considered carefully.
DB to DC transfers - regulator's guidance
The Pensions Regulator has published updated guidance for trustees of defined benefit (DB) schemes who have to deal with transfer requests from members wishing to enter defined contribution (DC) schemes to benefit from the new pension flexibilities. The regulator suggests trustees adopt a consistent approach to both statutory and non-statutory transfer requests and expands its advice on appropriate checks on both receiving schemes and the individual's independent adviser.
New commentary on when an employer must fund independent advice is helpful and the guidance confirms that the conversion of benefits within a scheme will require independent advice but that the transfer of benefits worth £30,000 or less will not.
The updated guidance is available here.
Auto enrolment escalating penalties
Between 1 January and 31 March 2015, the Pensions Regulator issued escalating penalty notices to four companies for auto-enrolment failures.
Such penalties are not automatic and, before they are issued, employers are given a final warning with a deadline to comply: only employers that still fail to comply are likely to get an escalating penalty. A further 371 employers have received a standard penalty for failure to comply up to 31 March 2015. Perhaps unsurprisingly, the majority of employers regret not allowing more time to complete their auto-enrolment duties according to the regulator's own research.
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