Posts Tagged ‘Tax’

Richard Smith

If nothing else, 2016 has shown us that predicting the outcome of future events is a mug’s game. If we can learn one thing from the likes of Brexit, Donald Trump, and Leicester City, it is to expect the unexpected. As such, it was with some trepidation I accepted the challenge to pen a short blog on what I expect to see from the Chancellor’s Autumn Statement next week.

Due to the proximity of the “Autumn” Statement to the festive season, I’m going to take some artistic licence and predict a visit from Aladdin’s Genie of the Lamp, who will offer me three wishes for what I would like to see in Mr Hammond’s first Statement. Bear with me, it doesn’t sound as unlikely as certain other events that have happened! What would I wish for….??

1. No tinkering with the pensions tax system. As attractive as it might be as a target for raising some much-needed revenue for the Exchequer, now is not the time for tinkering. Pensions are already far too complicated, and any changes will just add unwelcome complexity to a tax system that is already creaking and few people understand. As a nation, we need to be encouraging saving and shifting the goalposts just doesn’t help.

2. Do something to help (those members of pension schemes run by) distressed employers. There is a growing clamour in the industry about the impending problem of distressed employers – those 1000 companies who are sitting on schemes they have no realistic chance of funding. Do we just sit and wait for these companies to fail and their pension schemes to fall into the PPF, with benefit cuts for members and job losses for employees, or can something be done to help both the members and the sponsors? This is a very difficult problem to resolve, and not one for which there is a magic bullet, but a number of ideas have been floated over recent months. The Government is there to make difficult decisions – there is a danger that if something isn’t done soon they may run out of time on this one.

3. Improve the investment opportunities on offer. Providing more investment in income-generating infrastructure projects, as well as providing a government guarantee for the early years of such investments (which are traditionally the riskiest period). Allow mayors to issue “city bonds” so that pension schemes can invest in local projects. Issue more long dated index linked bonds – there is huge demand and at current yields what’s not to like for the Government?

So there you have it. I’m sure that come Wednesday Mr Hammond will have some very different policies to the above. It might be too late to put the genie back in the bottle for defined benefit pension schemes, but there’s plenty that can be done to improve the UK’s long term savings arena.

Angela Burns

Spence & Partners latest blog for Pension Funds Online –

Chancellor George Osbourne announced his Summer Budget on 8 July with a number of key developments for the pensions industry.

The main one being that the annual allowance will be reduced from April 2016 for individuals with income, including their own and their employer’s pension contributions of more than GBP 150,000.

The Chancellor also launched a consultation requesting industry views on reforming pensions tax relief. Read more »

Alan Collins

When attending the recent Actuaries Pensions Conference in Glasgow, I heard behavioural change expert Nick Southgate suggest that maybe the name ‘pensions’ was the thing holding pensions back.

I doubt this message made it all the way to Downing Street, but today’s budget suggests George Osborne and his treasury team are having similar thoughts.  The fact that today’s “pensions” green paper was issued by HM Treasury says it all.  This is not about pensions, it is about tax.

Read more »

Neil Copeland

The term nanny state was probably coined by the Conservative British MP Iain Macleod who referred to “what I like to call the nanny state” in his column “Quoodle” in the December 3, 1965, edition of The Spectator.

I’m not sure when nanny took on the slightly pejorative sense of an interfering busybody dispensing unwanted advice and meddling where they have no business to meddle, as opposed to the the all singing, all dancing and not entirely unattractive Mary Poppins, spreading order where once there was chaos, joy where once there was sorrow and Dick van Dyck were once there were cockneys.

So if the concept of a nanny is slightly schizophrenic so too are my feelings towards the nanny state.

I like to strike the pose of a Libertarian (and indeed in my wilder imaginings, a Libertine), bridling with a righteous fury when I hear news of some interfering busybody or other lambasting the over 65’s for having a second glass of sherry of an evening, or suggesting that we should embrace the travesty of food without salt.

We have these do-gooders in the pensions sphere as well, as a recent article in the Sunday Times makes clear. The article states that: Read more »

Sean Browes

I was sat in a pub with a friend recently and the conversation got round to pensions. It went something like this:

Friend – I’ve been thinking about putting some more money into my personal pension. Last time I looked into this, the maximum I could put in was 15% of my gross taxable earnings in any one tax year. Is this still the case?

Me – Ah! Things have changed. It’s all been simplified now. You can put in as much as you want …

Friend – Excellent!

Me – … except, if you go over your annual allowance, you’ll get hit for some pretty severe tax charges.

Friend – Oh … so how much ‘tax relieved’ contributions can I put in?

Me – Depends on your Pension Input Period.

Friend – My what?

Me – The actual Revenue definition is ‘the period over which you measure the amount of your pension saving’.

Friend – So not the same as a tax year?

Me – It could be … but not necessarily. In fact, it pretty certainly won’t be.

Friend – So what’s the maximum if my Pension Input Period ends after April 2011?

Me – Depends ….if it’s before 14th October, then, technically, £255,000 but the maximum contribution after 14th October 2010 is limited to £50,000. … unless.

Friend – Unless?

Me – you have unused relief from any of the three previous years. The Government has put in place some transitional arrangements which means you have a notional £50,000 for each of the last three years. If you haven’t used it all, you can carry it forward.

Friend – So, if I’ve put nothing into my pension in the last three years I could put in £150,000?

Me – Yes … except … how much do you earn?

Friend – £135,000 a year.

Me – Ah!

Friend – Ah?

Me – In that case you are deemed to be a high earner so the maximum contribution you could make before 5th April this year is £20,000.

Friend – £20,000?

Me – … or maybe £30,000.

Friend – Sorry?

Me – This is your Special Annual Allowance – it was introduced as an anti-forestalling measure by the previous Government when they attempted to restrict the tax relief for high earners. If you can demonstrate that you have made irregular contributions in any of the last three years with an aggregate value of £30,000 or more … your Special Annual Allowance is £30,000. Otherwise, it’s £20,000 … or, in some cases, between £20,000 and £30,000.

But, you see, the new Government then decided to stop messing around with tax relief and just limit the amount of tax advantaged contribution you could put in. So, the anti-forestalling measures are no longer required and have been removed under legislation, effective from the start of the next tax year.

Friend – But they still apply to this tax year?

Me – Oh yes! By the way, the tax charge is slightly different if you were to exceed the Special Annual Allowance –the Special Annual Allowance Charge effectively arises by restrciting the tax relief available on contributions in excess of the Special Annual Allowance to your basic rate so, in your case, it amounts to 20%. The Annual Allowance Charge is 40%.

Friend – (adopting glazed expression) I see (not really seeing at all). What about after April?

Me – Assuming you pay £20,000 before April 2011, between £30,000 and £130,000, depending on how much unused relief you’ve got available.

Friend – I’m not sure when my Pension Input Period runs from or to. What if my current Input Period ends before the 5th April? What would the maximum [tax relieved] contribution be?

Me – Hey, fill your boots, £255,000! Except ….

Friend – Except?

Me – You’re a higher earner so ….

Friend – I’m restricted to £20,000?

Me – Yep, anything over that would be subject to the Special Annual Allowance Charge.

Friend (with a hint of irony) – Well, thanks for clarifying that. I have another friend who’s in a defined benefit scheme – he asked me to ask you the same question.

Me – (Pause to reflect on the question) … did you see the football last night?

As the saying goes ‘you couldn’t make it up’. Actually, that’s not true, this is clearly a made up conversation (those of you who know me will know that I don’t go to pubs very often these days and I don’t have any friends).

The message, sadly, is not made up. There is a great deal of complexity around the reduction in the Annual Allowance from April this year and associated transitional arrangements. As intimated, there are added complications for Defined Benefit arrangements.

Up to now, the annual contribution limits have been generous and unlikely to be infringed except by all but the highest earners or those making large, one-off contributions. However, there is now significant potential for large numbers of active members to get tripped up by these legislative changes. For any type of scheme, trustees and/or employers should be communicating to members/employees, certainly in advance of April.

Individuals might want to seek the advice of their scheme administrator if they are a high earner (earning in excess of £135,000 per annum) and/or are making significant contributions. Alternatively, feel free to contact me or your usual Spence & Partners contact.

Neil Copeland

Persuasion. The psychological technique, not the Jane Austen novel. How do we persuade people to exhibit a particular behaviour?

According to Wikipedia persuasion is the process of guiding people and oneself toward the adoption of an idea, attitude, or action by rational and symbolic (though not always logical) means. The Wikipedia article cites lots of techniques and barriers to persuasion, but misses the big one as far as I can see.

In my experience the best way to persuade someone to pursue a particular course of action requires one fairly straightforward question to be answered;

“What’s in it for me?”

Read more »

David Davison

Chancellor Alistair Darling slipped another gem in to his pre-budget report which will further hasten the demise of already beleaguered final salary pension schemes as reported in Times Online

How is any lay person expected to keep up with all this? The level of complexity which needs to be understood is just mind boggling. Having just returned from a trustee meeting covering revisions to actuarial assumptions, trivial commutations  and anti-forestalling it was all I could do to keep the attendees from throwing themselves out of a 3rd floor window – and  for once I don’t think that was down to my presentational style!!

You’ve got to think that high earning directors who have effectively been persuaded to keep their schemes running to ensure their own benefits will shortly have absolutely no reason to do so.

Sean Browes

At the last budget, the Chancellor introduced significant changes limiting tax relief on pension scheme contributions for those with ‘relevant’ earnings over £150,000pa, tapering down to 20% for those with earnings over £180,000pa (i.e. the same as basic rate tax payers).

The changes are to be effective from 2011. However, the Chancellor has introduced a new special annual allowance test to prevent excessive contributions in the interim.

Read more »

Brian Spence

The increased pension flexibility likely to be available after April 2006 may well provide an unexpected lifeline for the sponsoring employers of many of the UK’s beleaguered final salary pension schemes as well as result in increased choice for their scheme members. It is likely that the new regulations will permit occupational pension schemes to provide higher levels of tax free cash, for a significant number of members, than would be available under current regulations, which could in turn mean that the cost of providing the total benefits is lower. Read more »

David Davison

Delaying decision-making to a later date is something that most company directors have probably spent much of their working lives battling against but, nevertheless, as the end of their own careers approach, it may be in many senior executives’ best interests to embrace this alien strategy, at least insofar as their pension arrangements are concerned.

Company directors and senior employees who are due to take benefits, or who opt to defer drawing any planned pension benefits until, after April 2006 could reap a financial reward as a result of the Governments pensions simplification legislation. Read more »

Page 1 of 212