Ever since Gordon Brown’s 2004 Finance Act which fundamentally changed how private pension provision is treated by the taxation system, no previous Chancellor has been able to resist tinkering with the system at every available opportunity, usually in an attempt to raise additional tax.
Tempting as it might have been for Rishi Sunak to continue this tradition, he appears content to ease off and allow the pension rules to remain broadly unaltered for a while.
The Finance Bill 2021-22 will contain no sudden “bolts from the blue”, but there will be some small changes arising from past consultations.
Normal minimum pension age
The Bill will include provisions to raise the age at which benefits can first be taken from authorised pension schemes without incurring an unauthorised payment charge.
At present the earliest date at which pension rights may be crystallised is 55. The government proposes to raise this to 57. This will have effect from 6 April 2028, and will not apply to certain public service schemes (firefighters, police and armed forces).
An “annual allowance charge” is triggered if the value of an individual’s pension rights increases in a year by more than the annual allowance (currently £40,000 but subject to taper for high earners down to as little as £4,000).
This charge is strictly a liability of the individual, and charged at his or her marginal tax rate. Since FA2011, it has been possible for the pension scheme administrator to pay the tax out of scheme funds, by making a corresponding reduction in the value of the member’s rights.
New provisions will extend the deadline for the scheme administrator to pay the tax, by tying it to the date when the administrator is asked by the member to pay on his behalf, rather than the end of the tax year in which the charge arose.
The curious affair of the dog in the night
To the massive relief of those of us who have endured the ever-changing field of pension tax law since 2004, none of the things people expected to see in the Budget actually occurred.
The annual allowance and lifetime allowance remain at their present levels (£40,000 subject to taper and £1,073,100 respectively), and tax relief on authorised pension contributions continues to enjoy relief at the individual’s marginal rate. Perhaps we will now see a period of stability, with pensions no longer seen within the Treasury as a cash cow for short-term revenue boosts.
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