The Budget on 24 March did not throw up any great surprises on pensions.
The government has confirmed that it will be undertaking formal consultation on the default retirement age and that no changes to the current age 65 will be implemented before April 2011. It also confirmed that the rates of annual allowance and lifetime allowance will be frozen for five years (up to 2015/2016). There will also be further consideration of trivial commutation.
Further detail has been added to the restrictions on tax relief on pension contributions for high earners to be introduced from 6 April 2011. The restrictions will apply to those with gross earnings of £150,000 or over, including employer pension contributions (with an income floor of £130,000). Tax relief will be tapered for those on gross incomes of £150,000 to £180,000, at a rate of 1% for every £1,000 of income, starting at 50% for those earning £150,000 down to 20% for those with an income of £180,000. There will be exemptions for those drawing a serious ill health lump sum and where an individual dies before drawing a pension.
A key issue is how employer contributions to defined benefit schemes are valued to determine gross earnings (this is important both for those with basic earnings of at least £130,000 and for those in the £150,000 to £180,000 band). The Government has decided to use an age-related scale taking into account both the individual’s age and the scheme’s normal pension age. The detail of this will be published in the Finance Bill 2010 and in future regulations. There will also be consultation on regulations setting out employer and pension scheme obligations in relation to the new provisions. We will be producing further guidance on the restrictions on pensions tax relief.
Key numbers from the Budget
- £255,000 (annual allowance 2010/2011 to 2015/2016)
- £1.8m (lifetime allowance 2010/2011 to 2015/2016)
- £97.65 (basic state pension 2010/2011)
Click here for the new details on tax relief restrictions for high earners