Money Matters - Spring 2012

The pensions revolution continues

Statue The world of pensions continues to develop rapidly, with more changes from April and further announcements from the Government. The start of the tax year on 6 April marks several important changes to pensions.

Contracting out If you are currently contracted out of the state second pension (S2P) through a personal pension or a money purchase occupational scheme, your contracting out will end automatically on 5 April 2012. The funds built up in your private pension arrangement will remain, but from 6 April you will start to accrue S2P.

National insurance contributions (NICs) NICs costs will rise from this April for employees who are contracted out through a personal pension or a money purchase occupation scheme – increasing both employers’ and employees’ contributions. For final salary schemes, the contracting out NICs rebate falls from 1.6% to 1.4%. For money purchase schemes, the rebate disappears completely because contracting out will have ended. The NICs rates will not change for employees contracted out through a personal allowance.

Lifetime allowance The standard lifetime allowance, which normally sets the maximum tax-efficient value of pension benefits, will fall from £1.8 million to £1.5 million. If you have existing primary or enhanced protection, the reduction will have little, if any effect. However, if you have no protection, then you may need to consider the option of claiming fixed protection, which was introduced last year.

Broadly speaking, fixed protection allows you to keep the £1.8 million lifetime allowance, but only if no further contributions are made to your money purchase pension arrangements and you don’t accrue any more benefits in a defined benefit scheme that exceed set limits. You must claim fixed protection by 5 April 2012, so if this protection might be relevant to you, please contact us as soon as possible.

Two other aspects of pensions were the subject of announcements late last year, but their impact will be longer term:

State pension age (SPA) You will only be affected by these adjustments if you were born between 6 April 1954 and 5 October 1954. The timetable for SPA increases has been changed. The move to 66 has been put back by six months, but the rise to 67 will now be introduced eight years earlier than previously planned, between April 2026 and April 2028.

Auto-enrolment The start date for auto-enrolment into pension arrangements for small employers is to be put back by 13 months, to May 2015.

For more information on the implications of these changes for you, please contact us.