8 pension changes for 2016 that your clients need to know
December 4th, 2015
While every attempt will be made to ensure that information provided is accurate at the time of publication, it should be treated as guidance only and does not constitute legal or professional advice. Tax law and guidance changes frequently and readers are advised to consult the current relevant publication for the most up-to-date information on this topic.
It's been a busy few years for pensions and 2016 will be no different. Here are some of the key developments expected:
1. Annual allowance
From 6 April 2016 the annual allowance of £40,000 for tax relief on pension savings in a registered pension scheme is tapered down to a minimum of £10,000 for individuals whose annual income is more than £150,000 (including their own and their employer's pension contributions). It will be reduced by £1 for every £2 of the excess over £150,000 down to a minimum of £10,000. This will not apply to anyone whose income, excluding pension contributions, is less than £110,000.
2. Lifetime allowance
The lifetime allowance for pension's contributions will be reduced from £1.25m to £1m from 6 April 2016, and transitional protection for pension rights already over £1m will be introduced.
3. Pensions tax system
In the Summer Budget 2015, the Chancellor announced that the government is consulting on whether there is a case for reforming the current system of pensions tax relief. The consultation ended on 30 September 2015 and the Chancellor has recently confirmed that the Treasury's final response to the consultation will be given in the Spring Budget of 2016.
4. Taxation of lump sum death benefits
Pensions tax rules will be amended to reduce the tax charge which applies to taxable lump sum death benefits paid from registered pension schemes or non-UK pension schemes. The tax charge will reduce from 45% to the recipient's marginal rate, and will have effect in relation to lump sums paid on or after 6 April 2016.
5. Inheritance tax and undrawn pension funds in drawdown pensions
The government will legislate in the Finance Bill 2016 to ensure a charge to inheritance tax will not arise when a pension scheme member designates funds for drawdown but does not draw all of the funds before death. This will be backdated to apply to deaths on or after 6 April 2011.
6. Single-tier State Pension
A single-tier State Pension will replace the basic and additional State Pensions from 6 April 2016. The full new State Pension will be £155.65 per week.
7. Abolition of DB contracting-out
A key consequence of the introduction of the single-tier State Pension is that defined benefit pension schemes will no longer be able to contract-out of the additional State Pension. As a result, both employers and employees will need to start paying the standard rate of NICs.
8. Automatic enrolment
Recent figures from the Department for Work and Pensions show that up to the end of September 2015, more than 5.47 million workers have been automatically enrolled into a workplace pension by over 60,000 employers. However, automatic enrolment duties will come into effect for hundreds of thousands of small and micro employers in 2016.
Comprehensive coverage of these developments, and all other pensions' issues, can be found in Tolley Library, for example in: