Budget packed with surprises?

The Chancellor is under serious pressure to produce a growth Budget on 21 March. But where will the money come from for tax cuts for entrepreneurs and businesses generally, not to mention other good causes? Increased borrowing is probably not the answer, if Mr Osborne has been influenced by Moody’s shot over his bows when the ratings agency recently designated a negative outlook for the UK economy.

One answer, according to commentators, would be to raid the higher rate tax relief on pension contributions – there have been several stories to that effect in the Financial Times and elsewhere. Of course, this has been threatened many times in the past. But this time could be different.

For a start there are people in the Coalition Government – the Lib Dems – who favour the policy. And discussions about the possibility of abolishing higher rate tax relief have been reported as taking place at the highest levels. The practicalities have been an inhibiting factor in the past, but now the legislators know exactly how to do it from their recent experience under the previous occupants of Downing Street. What’s more, it would look as if we really were ‘all in it together.’

Of course, there would be a lot of squealing – and quite right too. Yet what is the alternative political home for those who don’t like the idea? It is unlikely that most would be tempted into voting for Mr Miliband. David Cameron and George Osborne can blame Clegg and co. And there’s no getting away from the fact that it would raise billions.

So the Budget really could contain some major surprises this year – and pensions tax relief might only be one of them.

Source ” http://www.taxbriefs.co.uk/ngen_public/article.asp?id=0&did=0&aid=162&st=&oaid=0

Labour claims state pension reform has been “sunk”

The Government says it remains committed to its state pension reforms despite industry concern that public sector pension settlements threaten the proposals and Labour claims the Treasury has “sunk” the plans.

In April last year, pensions minister Steve Webb unveiled a green paper outlining proposals to bring an end to state pension means-testing and offering a higher state pension of around £140 at today’s prices by either introducing a single-tier state pension or accelerating plans to flat-rate the state second pension
Labour Shadow pensions minister Gregg McClymont (pictured) says Webb’s plans to reform the basic state pension may have been vetoed by the Chancellor due to the costs. He says: “State pension reform was the Government’s flagship pension policy. It appears it may have been sunk by the Treasury.”

Writing in Money Marketing this week, Hargreaves Lansdown head of pensions research Tom McPhail says public sector pension disputes will be making the Government nervous about state pension reform.

He says: “It is possible the Treasury is getting cold feet about the knock-on effect reform of the state pension would have on negotiations with the public sector unions over their final-salary schemes.

“The end of contracting out would mean an increase in NI rates for the five million public sector workers who are currently contracted out through their final-salary schemes.

“It is a safe assumption they would react very badly to being asked to pay 1.4 per cent in NI on top of the 3 per cent increase in member contributions which the current Treasury-led reforms of public sector pensions have demanded.”

Saga director general Ros Altmann says: “Any delay is likely to be linked to the public sector pensions issue but Webb and Work and Pensions Secretary Iain Duncan Smith are still committed to getting this reform through.”

Institute of Directors senior pensions policy adviser Malcolm Small says: “The issue of contracting out is a difficult one for both the Treasury and the DWP, particularly in relation to public sector workers, but there will be many more winners out of this than there will be losers.”

A Department for Work and Pensions spokeswoman says: “We will be bringing forward further proposals on a simpler and fairer state pension in due course.”

Source “http://www.moneymarketing.co.uk/pensions/labour-claims-state-pension-reform-has-been-sunk/1044201.article

Auto Enrolement or Nest (Do you know what it is?)

More than 100 employers around the UK have agreed to enrol some of their staff in the new national top-up pension scheme known as Nest – the National Employment Savings Trust.

Employers will not be formally obliged to begin the phased enrolment of their staff in Nest until October 2012.

If they already run a decent pension scheme, then all staff can be automatically enrolled in that instead.

But in a “soft launch” that began in July this year, a variety of small, medium-sized and large employers have volunteered to start the Nest process.

This will gradually ramp up activity, so that the Nest system will be absolutely ready come October next year.

So, how is it going?

“It’s going pretty well,” said Tim Jones, the chief executive of Nest.

“What is happening here is probably the single biggest implementation of behavioural economics, certainly in the financial sector, that’s been done yet.”

The basic facts

Automatic enrolment, either into Nest or an existing company scheme, begins in October 2012 and will apply to workers who:

are at least 22 years old but below their state pension age
earn more than £7,475 a year
Minimum contributions will be paid on their earnings between £5,035 and £33,540.

Employers will start paying a minimum of 1% of qualifying earnings, rising to a minimum of 3% by 2017.

Employees will start paying a minimum of 1% of their qualifying earnings, rising to a minimum of 5% by 2017.

The process of employers joining Nest and automatically enrolling their staff to it – or to their own pension scheme – will start with big and medium-sized employers between 1 October 2012 and July 2014.

Small and micro employers will have to join in the process between August 2014 and February 2016.

sourc “http://www.bbc.co.uk/news/business-15270701

 

 

Labour to target higher-rate pension tax relief

Labour has set its sights on higher-rate pension tax relief, declaring that too much Government money is being spent on the pensions of higher earners.

Speaking at a fringe event at the Labour conference in Liverpool this week, Shadow pensions minister Rachel Reeves said the Government should look at redistributing some of the £20bn a year it spends on pension tax relief.

She said: “We spend £20bn a year on tax relief for pensions and two-thirds of that goes to higher-rate taxpayers. Half the population get just 10 per cent of that £20bn. So I would like the Government to look at ways to make pension tax relief more efficient, more effective and better value for the taxpayer in incentivising the people who most need to save.”

National Association of Pension Funds chief executive Joanne Segars said: “We need to remember we are talking about tax relief here. There are a large number of people who get higher-rate tax relief on their contributions but they also pay tax at a higher rate when they retire and we should not lose sight of that.”

In 2009, Labour proposed a reform of higher-rate pension tax relief which would have seen relief cut for people earning over £130,000.

The complex measures were scrapped by the coalition Government which instead implemented a £50,000 annual allowance while continuing to allow individuals to receive relief at their marginal rate. It also announced a cut to the lifetime allowance from £1.8m to £1.5m from April 2012.

Scrapping higher-rate relief was a LibDem policy before the election and was promoted by current pensions minister Steve Webb.

Hargreaves Lansdown head of pensions research Tom McPhail says: “If Labour are going to raise the issue of tax relief, it is essential they look at the broader pensions tax landscape rather than simply looking at higher-rate relief in isolation. Making it

fairer will be harder to deliver than it is to speculate on and I am not convinced now is the right time with automatic enrolment starting next year.”

ould look at redistributing some of the £20bn a year it spends on pension tax relief.

 

Pension Changes

Financial Secretary to the Treasury, Mark Hoban MP has announced a series of
changes to the pension rules. The main changes include:

 

  • for 2011/12 the amount of the annual allowance will be
    reduced to £50,000 (from the current £255,000)
  • the method of calculating the amount of pension input
    amounts will be changed
  • there will be rule that allows carry forward of unused
    annual allowance from the last three tax years, and
  • from April 2012 the lifetime limit will be reduced to £1.5m.

Hutton recommends career average pensions for public sector

Lord John Hutton has recommended pensions for public sector workers shift from final salary to career average provision before the end of this Parliament.

In the final report of the Independent Public Service Pensions Commission, published today, the former Labour minister sets out detailed structural reforms designed to make public sector schemes “sustainable and affordable”.

He resists calls to introduce a hybrid scheme with a salary cap “due to the complexity this introduces to the system”, instead suggesting Government implements tiered contribution rates to reflect the “different characteristics” of higher earners.

Other key recommendations include linking the normal pension age in most public sector schemes to the state pension age, setting a “clear cost ceiling” for public provision to limit taxpayers’ exposure to employees’ pensions and introducing stronger, independent governance regimes across public service pensions.The pension age for uniformed services employees – which includes the armed forces, police and firefighters – will be 60.

The report says the cost ceiling, which has not been specified, should be the proportion of pay that Government will contribute. If it is breached, a consultation would be issued to bring costs back below the ceiling. However, if the consultation ended in deadlock Hutton says there should be a default mechanism which could take the form of an increase in employee contributions or a decrease in accrual rates.

The commission says accrued rights should be protected, meaning the final salary link for past service for current members would be maintained. It also proposes an overhaul of the legal framework for public service pensions to make it simpler.

Hutton (pictured) says: “These proposals strike a balanced deal between public service workers and the taxpayer. Pensions based on career average earnings will be fairer to the majority of members that do not have the high salary growth rewarded in final salary schemes.

“The current model of public service pension provision is clearly not tenable in the long-term. There is a clear need for reform. Getting the decisions right on the most appropriate structures and designs will be crucial to making any changes work in the future. This will only be achievable if there is effective dialogue between public service employers, employees and unions.”

The commission has not recommended specific levels for accrual rates, indexation and employee contributions as these remain “a matter for Government”. However, Hutton does warn that setting contribution rates too high would risk low-earners opting out of the scheme.

The report also recommends that benefits are increased in line with average earnings during the accrual phase for active scheme members. Post-retirement benefits should then be linked to prices to ensure they maintain their purchasing power.

The Treasury is currently in discussions with representatives from the Trades Union Congress over how a 3 per cent increase public sector pensions contributions will be phased in from 2012.

What about your Pension?

A report by Aviva and Deloitte has today cast a very dark shadow on the UK pension fund industry with the revelation of a £318 billion a year shortfall in pension funding in the UK. Each and every adult retiring over the next 50 years will need to put away over £10,000 a year to close the pension fund gap which is defined as the difference between income required for a comfortable living and that currently available from pension funding at the moment.
Is it time for you do something about this NOW!