Summary and implications

Having only just got to grips with the new pensions flexibilities, further big changes could be afoot. HM Treasury has issued a consultation on the shape of future pensions tax relief. The consultation itself is fairly brief and the Government is approaching it with an open mind. One specific reform which is under consideration is a move from the current EET tax system (Exempt-Exempt-Taxed) to the TEE (Taxed-Exempt-Exempt). The full adoption of this would mean no tax relief for employers of employees on pension contributions. Although open-minded, there are four principles the Government believes any reformed pensions system should meet:

  • Simple and transparent - to foster increased engagement and understanding.
  • Personal responsibility – to incentivise individuals to make sure they have adequate retirement savings.
  • Automatic enrolment – any reform should build on the existing successful processes developed.
  • Sustainability – providing a lasting solution which fits with the Government's wider fiscal strategy. 

The consultation document contains remarkably little detail. In particular there is no consideration of how any new tax regime would apply to benefits already accrued.

In its 2015 election manifesto, the Conservative party promised to reduce tax relief on pension contributions for individuals earning over £150,000 ("High Earners"). Today the Chancellor has confirmed that this is to be done by reducing the Annual Allowance for pension savings from £40,000 to £10,000 for High Earners. The reduction will be on a sliding scale – for every £2 of income an individual has over £150,000, their Annual Allowance will be reduced by £1 until it has tapered down to £10,000 for those earning £210,000 or more.

The £150,000 is an "adjusted income" figure which includes employer pension contributions (to prevent avoidance through salary sacrifice). The new rules will not apply to anyone with a threshold net income of £110,000 (regardless of pension contributions or other adjustments).

This change comes in with effect from 6 April 2016.

Other pensions matters covered include the following:

  • The implementation of a secondary market in annuities is to be delayed until April 2017.
  • Additional government resources are to be allocated (£36m over five years from 2016) to tackle serious tax non-compliance, including by pension schemes.
  • All pension input periods are to be aligned with the tax year – there will be transitional arrangements to put this in place. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.