The Finance Act 2011 received Royal Assent on 19 July 2011. The legislation makes wide-ranging amendments to the Finance Act 2004, and will assist in raising £4bn through implementing the government’s proposals to restrict tax relief on pension savings.
The main changes are as follows:
- A reduction in the Lifetime Allowance (from 6 April 2012)
The standard lifetime allowance has decreased from £1.8m to £1.5m. Those who expect their benefits to exceed £1.5m will be eligible to register for a fixed protection regime, allowing the individual to retain the original £1.8m allowance, providing they do not amass any further benefits.
- The implementation of a reduced Annual Allowance (AA) regime applying for 2011/12
The annual allowance has been cut from £255,000 to £50,000. Parties liable for an AA charge of less than £2000 will be required to pay it out of their income. An individual liable for a charge of £2000 or more can request that the scheme pay the charge, which will be offset against their benefits on a just and reasonable basis. To utilise the ‘scheme pays’ facility, the individual’s saving must exceed the annual allowance in the year the charge occurred. The ‘scheme pays’ mechanism will be effective from the 11 August 2011.
- The end of compulsory annuitisation on or before the age of 75 (from 6 April 2011)
Age-75 restrictions have been relaxed and there is now no specific age requirement for a member to draw an annuity or scheme pension.
In addition to the Act, regulations implementing this new framework have now been finalised, coming into effect on 11 August 2011. Employers should note that with regards to the reduced AA and 75 years age limit, the regulations will apply retrospectively from 6 April 2011.
The regulations can be viewed online at HMRC’s website.