beeRightMovieBee

Register for updates

Sign up to get the latest BeeLines sent direct to your inbox. You can unsubscribe later if you wish.

BeeHive  >  BeeLines  >  Pensions in the Pre-Budget Report

Pensions in the Pre-Budget Report

OK so this isn't the easiest BeeLine I've ever written. I'm on a train to Kings Cross right now (my peripatetic pensions life has taken me to Hull and back today) and I have just had the privilege of reading the whole of Alasdair Darling's 2007 PBR on my dopey little Blackberry handheld. The idea was to stop you having to read the whole thing too to find the pension bits. With the help of Ms Bruun at the other end of the mobile I think I've found five just such. They're copied and pasted below for you without any comment from me at this stage other than to say that I'm sure the reference to simplification in point four was probably not meant to come with the wave of irony that hit me when I read it. More on this stuff later of course.

Steve Bee

9 October 2007

Inheriting tax-relieved pensions savings

Legislation will be introduced in Finance Bill 2008 to ensure that tax-relieved pension savings diverted into inheritance using scheme pensions and lifetime annuities are subject to unauthorised payment tax charges. This measure will have effect for increases in a scheme memberís pension rights attributable to the death of another member when that member dies on or after 6 April 2008.

Where appropriate, tax-relieved pension savings diverted into inheritance using scheme pensions and lifetime annuities will also be subject to inheritance tax (IHT). Draft legislation has been published today on the HMRC website.

Details of the measure are set out in PBR note 15 (which is reproduced below).

PBRN 15

9 October 2007

INHERITING TAX-RELIEVED PENSION SAVINGS

Who is likely to be affected?

1. Members of registered pension schemes, their dependants and beneficiaries, scheme administrators, insurance companies and financial advisers.

General description of the measure

2. Legislation will be introduced in Finance Bill 2008 to ensure that tax-relieved pension savings diverted into inheritance using scheme pensions and lifetime annuities are subject to unauthorised payment tax charges and, where appropriate, inheritance tax (IHT).

Operative date

3. This measure will have effect for surrenders made on or after 10 October 2007 and for increases in pension rights attributable to the death of a member when the member dies on or after 6 April 2008. The IHT provisions will also have effect when the member dies on or after 6 April 2008.

Current law and proposed revisions

4. There are existing rules to prevent the abuse of pension tax reliefs through members surrendering rights under registered pension schemes during their lifetime or through the reallocation of assets after a memberís death in certain circumstances.

5. The proposed legislation extends the existing anti-avoidance rules:

ē to impose unauthorised payment charges when the member surrenders rights to payments under a lifetime annuity or dependantís annuity;

ē to impose unauthorised payments charges when a member who has rights to a scheme pension, a lifetime annuity, a dependantís scheme pension or a dependantís annuity, dies; and a connected person becomes entitled to an increase in their pension rights under the scheme that is attributable to that death;

ē to impose an IHT charge where a member with a scheme pension, a lifetime annuity, a dependantís scheme pension or a dependantís annuity dies aged 75 or over and there is an increase in pension rights attributable to the death of a member or an unauthorised lump sum payment in respect of the deceasedís pension scheme arrangement.

6. Unauthorised payments are subject to income tax charges of up to 70 per cent.

7. The income tax and IHT charges on re-allocations of rights after a member has died do not apply where the scheme has 20 or more members and the increases in rights are applied at the same rate for each member.

8. HM Revenue & Customs (HMRC) published a Consultation paper at Budget 2007 entitled "Tax relief for pensions: inheriting Tax-relieved Pension Savings".

9. Draft legislation has been published today on the HMRC website.

Spreading of tax relief for pension contributions

Legislation will be introduced in Finance Bill 2008 to ensure that the rules that spread tax relief for large employer pension contributions relative to their contribution in the previous year cannot be circumvented. This measure will have effect for payments made on or after 10 October 2007 under binding obligations entered into on or after 9 October 2007.

The measure will ensure that the spreading of contributions cannot be avoided by routing them through a new company. Draft legislation to achieve this has been published today on the HMRC website.

Details of the measure are set out in PBR note 13 (which is also reproduced below).

PBRN 13

9 October 2007

SPREADING OF TAX RELIEF FOR PENSION CONTRIBUTIONS

Who is likely to be affected?

1. Employers making large payments that transfer their obligations to meet registered pension scheme liabilities to another person.

General description of the measure

2. Legislation will be introduced in Finance Bill 2008 to ensure that the rules that spread tax relief for large employer pension contributions relative to their contribution in the previous year cannot be circumvented.

Operative date

3. This measure will have effect for payments made on or after 10 October 2007 under binding obligations entered into on or after 9 October 2007.

Current law and proposed revisions

4. Employers generally get relief against their taxable profits for contributions paid to a registered pension scheme. Relief is given for the chargeable period in which the contributions are paid.

5. Some large contributions are spread over a period of up to 4 years. This spreading applies where the contribution:

ē is more than 210 per cent of the contribution paid in the previous chargeable period; and

ē exceeds 110 per cent of the contribution paid in that previous period by at least £500,000.

6. The measure will ensure that the spreading of contributions cannot be avoided by routing them through a new company. Draft legislation to achieve this has been published today on the HM Revenue & Customs website.

Pensioner credit

The Government today announces that it will increase the Pension Credit standard minimum guarantee to £124 for single pensioners and £189 for couples in 2008-09, demonstrating the Governmentís continued commitment to tackling pensioner poverty.

State Second Pension

Following the Pensions White Paper, the Pensions Act 2007 puts in place proposals to reform the State Second Pension so that it becomes a simple, flat rate weekly top-up to the basic State Pension by around 2030, providing a clearer foundation for private saving. To ensure this timetable is met while delivering the personal tax reforms announced at Budget 2007 the Government will introduce the Upper Accruals Point for State Second Pension in 2009. Legislation will be introduced in the NICs Bill to ensure there is no delay in State Second Pension simplification.

Outcome of the review of the operation of the Open Market Option (OMO)

Under the Open Market Option (OMO) an individual can shop around to get the best annuity deal. The Government announced in 'The Annuities Market' at PBR 2006 that it was a good time to work with key stakeholders to review the workings of the open market. The joint HMT and DWP led review has worked with a range of stakeholders to agree a proportionate package of measures to improve the OMO for both personal and occupational pension schemes.

Outcome of the review of the operation of the Open Market Option

Steve Signature

Source: HMRC Pre-Budget Report 2007 Report Notes.

Any research and analysis has been provided by us for our own purposes and the results of it are being made available only incidentally.