Finance Act 2007
· In the first ‘U-Turn’ of the pensions simplification legislation, introduced on 6 April 2006 (‘A-Day’), tax relief on individual contributions to pension term assurance policies has been abolished. It does not, however, affect the relief available for contributions paid by employers.
· The second U-Turn concerns Alternatively Secured Pensions (ASPs), which are available to people reaching age 75, who do not want to buy an annuity with their pension fund.
When first introduced, ASPs had no minimum income withdrawal requirement and it was possible to pass any remaining funds on the member’s death to the pension funds of other members of the same scheme, if the member had no surviving dependants; referred to as a ‘transfer lump sum death benefit’ (TLSDB).
FA 2007 has introduced a minimum level of income, which must be drawn from ASP's each year. Also, any TLSDB passed to other scheme members will attract penal tax charges with effect from 6 April 2007, in addition to being assessable for Inheritance Tax.
· On a more positive note, FA 2007 makes it possible to take a tax-free cash sum either six months before, or twelve months after, entitlement to pension arises, providing the person becomes entitled to it before reaching age 75.
· Finally, FA 2007 allows the maximum income amount from an unsecured pension fund (Income Withdrawal) to be reviewed more frequently than once every five years.
Pensions Act 2007
· PA 2007 heralds a significant increase in Basic State Pension (BSP) entitlement from 6 April 2010; particularly for women.
At the moment, many women and carers are currently denied entitlement to a full BSP because their family and caring responsibilities mean they are not in work long enough to qualify.
The number of years of National Insurance Contributions required to achieve a full BSP is currently 39 years for women and 44 for men.
From 6 April 2010, this will be reduced to 30 years for both women and men.
In addition, people caring for children or those with a severe disability, will be able to build up a state pension entitlement through weekly carers credits.
· PA 2007 restores the link between annual increases in the BSP and annual increases in earnings (rather than prices). This change will happen from 2012 at the earliest, and by the end of the next Parliament at the latest.
· PA 2007 will gradually increase State Pension Age (SPA) to 68 by 2046 for men and women, to reflect increasing longevity.
Currently, women receive their State Pension at 60 and men at 65.
SPA for women will increase to 65 between 2010 and 2020, so that SPA will be the same for both men and women by 2020.
Thereafter, SPA for men and women will rise from 65 to 68 in stages between 2024 and 2046.
· Finally, PA 2007 established the ‘Personal Accounts Delivery Authority’, who will advise on the delivery of Personal Accounts.
From 2012, all eligible workers will be automatically enrolled into either an existing suitable work-based pension scheme, or into a Personal Account, although they can choose to opt-out.
Employees will contribute 4% of their gross income a year, which will be matched by a minimum 3% employer contribution and a 1% contribution by the Government in the form of tax relief.
Don’t forget that our qualified, independent advisers at Pearson Jones
would be delighted to assist you in all aspects of your pension and retirement planning. To arrange an initial complimentary meeting, please contact
James Jones-Tinsley on 0113 228 0900
and mention this article.
Yorkshire Post – 29th September 2007