Eversheds' Tom Meyrick takes a closer look at the finance bill and what it means for pensions.
For pensions, there are five specific consequences of the bill, all of which are due to take effect from April 6 2017.
Employer-arranged pensions advice exemption
This exemption was announced in the Budget 2016 following the Financial Advice Market Review and provides a new income tax and national insurance contributions relief, covering the first £500 worth of pension advice given to an employee in a given tax year – a £350 increase on the current level of relief – and will now cover both pensions and general financial and tax issues pertaining to pensions.
Much of the content of the bill was made clear in the Autumn Statement and so the proposed changes are to be expected, but other changes may be on the horizon
The rationale behind this change is to facilitate access to advice for individuals approaching retirement who are considering the options available for accessing their pension savings.
Changes to tax treatment of foreign pension regimes
To eliminate inconsistencies and streamline the UK’s pension tax system, the finance bill 2017 includes provisions to align the tax treatment of foreign schemes with the UK’s domestic pension tax regime through the following measures:
Bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic pensions and lump sums.
Closing of specialist pension schemes for those employed abroad to new saving.
Extending from five to 10 tax years the UK’s taxing rights over recently emigrated non-UK residents’ foreign lump sum payments from funds that have had UK tax relief.
Aligning the tax treatment of funds transferred between registered pension schemes.
Updating the eligibility criteria for foreign schemes to qualify as overseas pension schemes for tax purposes.
Authorised investment funds
The rules on the taxation of dividend distributions to corporate investors are to be modified to allow pension funds and other exempt investors to obtain credit for tax paid by authorised investment funds. Detailed proposals will be published in the new year.
MPAA restriction to £4,000
The money purchase annual allowance, the annual amount individuals can contribute in a tax-efficient manner to a defined contribution pension once they have accessed their pension on a flexible basis, will be reduced to £4,000 from £10,000.
The change aims to tackle “inappropriate double tax relief” by those savers who take money out of their pension and then reinvest it to benefit from a second round of tax relief.
The government’s consultation on whether or not the level of the money purchase annual allowance would have an impact on automatic enrolment or disproportionately affect particular groups remains open until February 15 2017.
Salary sacrifice
In the Autumn Statement, the chancellor described salary sacrifice as “unfair” and proposed to abolish it from April 2017.
Unpacking the proposed DB bill
In May this year, as chair of the Work and Pensions Committee, Frank Field promised an inquiry into defined benefit schemes, “considering radical solutions to one of the great problems of this age.”
The finance bill 2017 gives form to this by limiting the income tax and employer NIC advantages where benefits in kind are offered through salary sacrifice, or where the employee can choose between cash allowances and benefits in kind. However, as expected, pension schemes are exempt from these changes.
Much of the content of the bill was made clear in the Autumn Statement and so the proposed changes are to be expected.
But other changes may be on the horizon, particularly in relation to the state pension triple lock, which the chancellor has indicated may not continue indefinitely.
Tom Meyrick is an associate at law firm Eversheds
