Government body urges review of pension allowances

In Industry Insights by woateam

The government should consider applying different pension allowances to taxpayers depending on whether they are saving into a defined contribution scheme or a final salary plan, the Office for Tax Simplification has said. In a 93 page report published yesterday, the OTS highlighted the issues many defined benefit members, such as doctors and consultants, have been facing with the annual allowance and the tapered AA. It stated: “As the legislation produces distortions in behaviour that have negative effects such as those in the NHS, it seems sensible this legislation should be reviewed with a clear focus on its wider impact.” Introduced in 2016, the tapered AA gradually reduces the allowance for those on high incomes, meaning they are more likely to …

Cost of pension tax relief hits almost £40 billion

In Industry Insights by woateam

Income tax relief on pension contributions is expected to cost the government £21bn this year, with national insurance relief to hit £18.7bn, according to official figures. Latest data from HM Revenue and Customs, published today showed income tax relief on pension contributions is estimated to cost £21.2bn in 2019/20, up 4 per cent from £20.4bn in the previous year. Tax relief on pension contributions is paid at the saver’s marginal rate of income tax, meaning basic rate taxpayers get 20 per cent pension tax relief, increasing to 40 per cent for higher-rate taxpayers and 45 per cent for additional-rate taxpayers. HMRC also estimated that national insurance tax relief for employers and employees on their pension contributions will cost £18.7bn this year, up …

Warning over ‘disastrous’ pension tax-free cash proposal

In Industry Insights by woateam

The industry has heavily criticised proposals made by a think tank to scrap pensions tax-free cash and fund the abolition of inheritance tax instead. Mark Littlewood, director-general of the Institute of Economic Affairs, called on the government to make the tax change in an article in The Times, where he argued “there is very little to justify the tax-free lump sum people can withdraw from their pension pot”. But providers and advisers have warned of “potentially disastrous long-term consequences” from any such measure, which they said was a far cry from “progressive change”. Under the pension freedoms reforms most pension savers over the age of 55 are entitled to take some or all of their pension savings in the form of a cash lump sum, …

Partial DB pension transfers expected to boom

In Industry Insights by woateam

The number of defined benefit pension schemes offering partial transfers could increase after they have converted their contracted-out benefits, a consultant has said. In a paper published last week, Ryan Markham, head of member options at Hymans Robertson, stated that removing guaranteed minimum pension benefits through conversion “will remove administrative complexity,” which would ultimately allow pension schemes to offer partial transfer values. He said: “For some schemes, particularly those with lots of long-serving members, partial transfers could be a really attractive option for both members and schemes.” A partial transfer is when some of the value of the DB scheme is transferred to a defined contribution pot while some DB rights are kept behind. Pension funds are not legally obliged to …

Labour promises help for 1950s women over pension changes

In Industry Insights by woateam

The Labour Party will consult on measures to support women affected by an increase in the state pension age, according to shadow pensions minister Jack Dromey. Mr Dromey said the party would analyse what support measures can be put in place once in government “to help ensure that all these women have security and dignity in older age”. “A grotesque injustice cannot be allowed to stand,” he noted. Mr Dromey was reacting to the decision by the High Court to reject claims that increasing the state pension age for women born in the 1950s discriminated against them on the grounds of age and sex, and that the government had failed to appropriately notify those affected. Plans to increase the state pension age were first announced …

Court dismisses women state pension age challenge

In Industry Insights by woateam

The High Court rejected claims that the increase in the state pension age affecting women born in the 1950s was discriminatory. In a judgment handed down at the Royal Courts of Justice in London, Lord Justice Irwin and Justice Whipple dismissed claims of age discrimination, sex discrimination and lack of notice. The judicial review, which took place in June, was brought by two claimants – Julie Delve, 61, and Karen Glynn, 62 – who argued that raising their pension age “unlawfully discriminated against them on the grounds of age, sex, and age and sex combined”. On age discrimination, the court rejected the argument that the legislation breached the European Convention on Human Rights, on the “basis of case law which establishes …

Chancellor may scrap inheritance tax

In Industry Insights by woateam

Chancellor of the Exchequer Sajid Javid has hinted that the government is poised to either scrap or make reforms to the unpopular inheritance tax regime later this year. Speaking at a Conservative Party conference fringe event organised by the Institute of Economic Affairs and the Taxpayers’ Alliance, Mr Javid said although reforms have already been made to IHT, scrapping the tax altogether is something that the government may consider in the near future. The chancellor acknowledged the unpopularity of IHT among the public with claims that it is unfair that people’s income gets taxed both in life and at death. Mr Javid said: “I shouldn’t say too much now, but I understand the arguments against the tax. “I do think that when …

Pensions could be worth more than property after Brexit

In Industry Insights by woateam

Defined benefit pensions could be worth 25 per cent more than property in a no-deal Brexit scenario, according to calculations from Hymans Robertson. The consultancy, which compared the value of an average UK property with an average DB pension, concluded that a final salary pension could be worth more than a house as soon as this month. Figures from the Office for National Statistics published in September showed the average house price in the UK increased by 0.7 per cent in the year to July 2019, the lowest annual rate since September 2012, when it was 0.4 per cent. Ross Fleming, co-head of DB investment Hymans Robertson, noted that while UK property prices were on the precipice of decline with Brexit …

Billions of pounds bequeathed each year in cash

In Industry Insights by woateam

More than £17bn in cash is left to beneficiaries in the UK each year, highlighting the need for financial advice for those in later life, research has shown. Analysis from bereavement services firm Equiniti Benefactor, published showed an average of £69,000 in cash was left per estate. A total of £10bn in securities — such as stocks, shares and bonds — was handed down at death each year. The figures also showed property continued to dominate the value of assets at bereavement, accounting for 54 per cent of the total wealth with a total of £43bn left behind in 2016/17. By comparison, securities accounted for 13 per cent while cash was about 22 per cent of all assets passed down. Insurance policies only …

Pension schemes urged to offer partial DB transfers

In Industry Insights by woateam

Royal London has called for more pension schemes to offer partial transfers after a survey of advisers found five in six supported the option. A joint research paper by Royal London and consultants Lane Clark & Peacock highlighted the advantages of wider access to partial DB transfers for advisers, pension scheme members and trustees. A partial transfer occurs when some of the value of the DB scheme is transferred to a defined contribution pot while leaving some DB rights behind. Pension funds are not legally obliged to offer partial transfers, but trustees can choose to. For example, Ford introduced partial DB transfers this year which allowed members who make contributions to keep half of their pension and transfer the other half. A …