The changes come into force on 6 April, employees are asking their employers about them, and in turn employers are seeking help. The window for planning is getting ever shorter and Jelf is urging employers to talk to the experts at the earliest opportunity. Businesses need to understand how the changes will affect their business and their employees, and need to communicate such changes.
While there are some relatively straightforward decisions to be made for some, such as maximising tax allowances and increasing pension contributions if appropriate; other decisions are more complicated around whether previous years’ pension contribution allowances have been maximised and utilising the ‘fixed and/or individual protections’ available. The most important point is that such decisions need to be made and, most importantly for some, implemented by the end of this tax year.
Alan Millward, managing director – financial services for Jelf Employee Benefits said: ‘The tax implications are far reaching and complicated. If ever there was a time to seek expert advice it is now. Frankly, the planning that we have witnessed has been inadequate. Employers need help in addressing the salient issues to find the solution that works for their business and their people.
“There is a lot of speculation about what may or may not be announced in the upcoming Chancellor’s budget. What we know for sure is that the Annual Allowance and Lifetime Allowance are issues that need to be addressed now. Employers mustn’t hold off and wait to see what the budget brings, any further changes can be dealt with at that time, and we strongly advise employers to get plans in place for the tax issues that are going to affect their people right now, or there will be some seriously disgruntled employees.”
The first step is for employers to identify who the new rules may affect, and this includes:
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An employee whose pension savings are close to, or in excess of, £1m. Such individuals will need to make a decision very quickly regarding whether or not to continue contributing to their pension. Some protections are available but any decision to stop contributing to a pension must be effective before 6 April 2016 in order to benefit.
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Employees whose taxable income (from all sources) exceeds £110,000 could be affected by tapering of the Annual Allowance.
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There are tax consequences if the Annual and/or Lifetime Allowances are exceeded by any individual.
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High-earners are most likely to be affected, but Jelf cautions that it isn’t always evident which employees will be affected as all pension pots are taken into account for tax calculations and if an employee has been saving over a long period of time and has a number of pensions, they may well be affected too.
About the new pensions taxes
Annual Allowance
Anyone whose total taxable income from all sources is over £110,000 will need to have their entire pension contributions/accrual tested against the Annual Allowance. If this figure is above £150,000 they will suffer a reduction in their Annual Allowance. This reduction could be as much as 75% of the full Annual Allowance.
Lifetime Allowance
The Lifetime Allowance is being reduced to £1m; a figure that may still appear out of the reach of the majority. However, a high earner with moderate pension savings and at least 3 times death-in-service benefits will be at risk of exceeding the new limit. Individuals will have some protection options to consider, and they may need to take action before 6th April 2016.
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