The Summer 2015 Budget introduced further changes to the rules governing taxation and pension savings. These changes, along with changes already announced in the 2014 Budget, will affect people in different ways. We are highlighting these changes to you below and it is important that you read this carefully to understand how you might be affected.
The last two Budgets have introduced two significant changes to the taxation of pensions around the Lifetime Allowance and the Annual Allowance.
Lifetime Allowance
In his 2014 Budget the Chancellor announced that the Lifetime Allowance would reduce with effect from 6 April 2016 from its current value of £1.25 million to £1 million.
As a result of this change, HM Revenue & Customs (HMRC) will be introducing two new forms of protection to individuals whose pension savings have already reached £1 million by 5 April 2016. These forms of protection are called Fixed Protection 2016 and Individual Protection 2016 (simply referred to as “FP2016” and “IP2016”).
What should you do next?
You should review the total measure provided above and add any other pension savings you have. Once you have your total figure you should then see whether you should be considering applying for a form of HMRC protection.
Annual Allowance
The Summer 2015 Budget announcement confirmed a number of changes to the Annual Allowance, specifically aimed at “higher earners”, by reducing the amount of tax relief they can receive on their pension contributions. These changes will come into effect from 6 April 2016.
The Annual Allowance will be reduced from the current £40,000 p.a. if both of the following criteria apply:
- Your “threshold” income is over £110,000; and
- Your “adjusted” income is over £150,000.
In simple terms your “threshold” income is your total gross income without adding back any pension contributions you and the Company have made and your “adjusted” income is your total gross income including any pension contributions made.
Where your adjusted income falls between £150,000 and £210,000 the personal allowance is calculated on a tapering basis to fall between £40,000 and £10,000.
What should you do next?
If you are an active member of the Scheme and your Annual Allowance will reduce, you must advise Kingfisher Group Pensions Team as soon as possible so that we can monitor your pension input against your specific Annual Allowance.
More information?
We have produced a Q&A document for our members to assist in explaining these changes and we have updated the Annual Allowance and Lifetime Allowance webpages.. To view the Q&A please click here. We would also recommend visiting HMRC’s website for further assistance and clarification.
