In the Autumn Statement given by the Chancellor on Wednesday 23 November 2016 there was one ‘mini-rabbit’ out of the hat for pensions in the form of a reduction to the money purchase annual allowance, a welcome reprieve for pension contributions from changes to salary sacrifice arrangements, and a new consultation on pension scams announced. We set out further details below.
Money purchase annual allowance to be reduced
If a pension scheme member flexibly accesses their defined contribution (DC) funds, for example by taking an uncrystallised funds pension lump sum (an UFPLS) or by putting funds into drawdown, from age 55, then they subsequently have a reduced annual limit on the amount that they can save into a DC scheme. This is the money purchase annual allowance and presently is set at £10,000. The Chancellor announced in the Autumn Statement that this will be reduced to £4,000 from April 2017. This is to reduce the opportunity to obtain double pensions tax relief on recycled pension saving. HM Treasury has issued a consultation seeking views on whether this will affect the continued roll-out of automatic enrolment. It also seeks input as to whether it would impact disproportionately on particular groups, such as those who are divorced, have been made redundant or declared bankrupt.
The government has had salary sacrifice in its sights for some time as a tax relief that it wishes to trim back. The Chancellor has now confirmed that the tax and NI advantages of salary sacrifice schemes will be removed from April 2017; however there are certain exceptions – including arrangements relating to pensions. No further details are yet available, but we assume this means that pensions salary sacrifice arrangements will be able to continue in their current form, providing welcome stability for the many schemes that use this arrangement.
Consultation on pension scams
The government will shortly publish a consultation on options to tackle pension scams, including banning cold calling in relation to pensions, giving firms greater powers to block suspicious transfers and making it harder for scammers to abuse small self-administered schemes (SSASs). This is a welcome development in an environment where cold calling is on the increase. It is not yet clear what assistance the greater powers for ‘firms’ to block suspicious transfers will provide to pension scheme trustees in this tricky area. We will report further on the details when the consultation is issued.
The Chancellor committed to keeping the pension triple lock for state pensions until the end of this Parliament (2020). Under the triple lock system, state pension rises by the highest of the rise in average UK earnings, the rise in inflation and 2.5%.
The reduction to the money purchase annual allowance represented the only pensions surprise in this statement. Otherwise, the developments announced are mainly welcome and do not present further radical changes for pensions at this time.