Three general areas mentioned in the Emergency Budget are likely to affect pension planning for our clients over the coming years.
a) Contribution Limits
The new Coalition Government proposes to change the maximum limits on tax relieved pension contributions, introduced by the Labour Government.
The Chancellor’s provisional analysis indicates that the maximum annual tax relieved contribution (the Annual Allowance) will fall between £30,000 and £45,000 per person, with effect from 6th April 2011.
b) Extension of Middle Age to age 77!
At present members of our SSASs and SIPPs do not have to buy an annuity at any time. The Government has confirmed that it will end the effective requirement in other schemes to buy an annuity with effect from 2011/12.
In addition, if a member who was under age 75 on 22nd June 2010 dies before attaining age 77 any residual funds may be paid out in lump sum form at a tax rate of 35%. Previously, no lump sum benefits could be paid after age 75 and the tax on residual funds could have been as high as 82%.
Lump sum benefits will not be payable on death after age 77 and no changes have been made to the rates applying on death in these circumstances. Therefore, the tax on death after age 77 could still be as high as 82%.
c) Employer Funded Retirement Benefit Schemes
The Government is reviewing the tax and National Insurance treatment of Employer Funded Retirement Benefit Schemes (EFRBS) and similar schemes and changes may take effect from 6th April 2011.