Autumn Statement 2013

Introduction

Pensions are once again headline news, as the Chancellor announced in theAutumn Statement on 5 December 2013 measures that will see faster increases in SPA. But aside from a number of changes to the state pension, the Chancellor appears to have steered clear of announcing further changes to pensions tax relief.

Key points

Widely trailed, SPA is set to increase more quickly.
The Government has confirmed its intention to introduce IP14, for individuals affected by the forthcoming reduction in the LTA.
Certain Equitable Life policyholders can expect compensation payments in December 2013.

State pension changes

Further increases in SPA

In a bid to keep pace with increasing life expectancy, which has made the current pension system unsustainable, further increases in SPA have been announced.

The Pensions Bill 2013 already provides for SPA to increase to age 67 between 6 April 2026 and 5 March 2028 and this plan remains unchanged. But further increases are on the cards, with SPA likely to rise to age 68 by the mid-2030s (instead of 2046 as planned), and with a further possible rise to age 69 by the late 2040s.

These increases in SPA, including the exact dates on which they will take effect, will be managed under provisions already in the Pensions Bill for the periodic review of SPA, in line with the latest demographic data.

The proposed increases in SPA are underpinned by the Government’s core principle that “people should expect to spend, on average, up to one third of their adult life in receipt of the State Pension.”1

With an estimated saving for HM Treasury of £500 billion over the next 50 years resulting from the increases in SPA, the Government has confirmed its intention to maintain its “triple lock” for the state pension, which guarantees the highest increase of average earnings, inflation or 2.5%.

New scheme for pensioners

From October 2015, the Government plans to introduce a scheme to allow current pensioners, and those who reach SPA before the introduction of the single tier state pension in 2016, the option to top up their Additional State Pension record through a new class of voluntary NICs. Details of this arrangement are expected to be set out closer to the implementation date.

Pensioners living abroad

In a bid to avoid overpayments of state pension that arise from unreported deaths, the Government intends to maintain more regular contact with pensioners living abroad.

Pensions tax relief 2014 – a quick recap

Reductions in the AA and LTA

First announced in the Autumn Statement 2012, changes to the AA and LTA will come into force from April 2014:

the AA for tax relief on pension savings (which limits tax relief on pension savings by an individual in a registered pension scheme in any given tax year) will be reduced to £40,000 (from £50,000); and
the standard LTA (the total amount of tax relieved pension savings that an individual can build up over a lifetime without incurring an additional tax charge) will be reduced to £1.25 million (from £1.5 million).

Transitional protections against the LTA are being introduced to help those individuals with pension savings at or in excess of the revised LTA.

Fixed protection 2014

A transitional protection regime, “fixed protection 2014”, was provided for in the Finance Act 2013. Using the framework of the fixed protection regime introduced from April 2012, FP14 will allow an individual to maintain an LTA of the greater of £1.5 million and the standard LTA. As with FP12, FP14 can be lost in certain circumstances, including new contributions to a DC arrangement or DB accrual in excess of the relevant percentage (for this purpose, normally either the annual rate of revaluation specified in the scheme rules as of 11 December 2012 or CPI (if no rate is specified), although certain statutory increases will be excluded from this test.

Applications for FP14 must be received by HMRC by 5 April 2014 and can be completed online.

Individual protection 2014

Following a consultation over the summer, the Government has now confirmed that it will introduce a new form of “individual protection” (IP14) that will entitle individuals to a personalised LTA of the greater of the value of their pension rights as at 5 April 2014 (up to an overall maximum of £1.5 million) or the standard LTA. For example, an individual with pension savings of £1.3 million on 5 April 2014 who applies for IP14 will have a personalised LTA of £1.3 million. But if an individual’s pension savings exceed £1.5 million on 5 April 2014, their personalised LTA will be limited to £1.5 million.

Full details of this measure are awaited.

Interaction between tax protections

Individuals will be able to hold both IP14 and either FP12 or FP14. For individuals who register for both types of protection, fixed protection will take precedence, with the individual able to rely on the higher LTA. But if either FP12 or FP14 are lost, IP14 will come into play, taking effect from the date on which fixed protection is lost. However, individuals with primary and/or enhanced protection look set to be excluded from applying for IP14.

Equitable Life Compensation Scheme

The Budget 2013 announced that payments of £5,000 would be made to people who bought With-Profits Annuities from Equitable Life before September 1992, with a further £5,000 going to those on Pension Credit. The Government has now confirmed that the majority of these payments will be made to policyholders’ bank accounts in December 2013.

1 This seems slightly at odds with other commentators’ views on how long individuals should expect to be in receipt of state pension.