Autumn Statement 2012: summary of key points affecting your SSAS

In his Autumn statement chancellor George Osborne unveiled a range of measures, many of which were pensions related:

1) The Annual Allowance for pension scheme contributions will be reduced from £50,000     to £40,000; this will take effect from 2014/15.

2) The Lifetime Allowance for an individual’s pension scheme saving will be reduced from £1.5 million to £1.25 million with effect from 2014/15. 

3) The rate used to calculate pension scheme income from ‘Capped Drawdown’ will be increased from 100% of GAD to 120%.  There is no definitive date as to when this will take effect at present.   SSAS Practitioner.com will advise as soon as the date is released. 

4) Clients with pension pots in excess of, or which are likely to exceed £1.25 million, can apply for various forms of protection.

Annual allowance

Although the reduction in the Annual Allowance from £50,000 to £40,000 does not take effect until 2014/15 one needs to bear in mind that ongoing pension planning is vital.   The reduction in the Lifetime Allowance will result in an increasing inability to make substantial contributions immediately prior to retirement.   This reduction in the allowance will also decrease the amount of tax relief individuals can receive from any pension contribution, and hence decrease the ability to mitigate corporation tax through SSAS contributions.

The government estimates that the decrease in the Annual Allowance to £40,000, from 2014/15 will save the Treasury £600m a year.   Because Pension Input Periods are not always aligned with tax years, clients need to be careful to avoid a situation in which they could potentially be affected by the cut in the Annual Allowance well before 6 April 2014.   SSAS members who have altered (away from the default tax year for pension contributions) their Pension Input Periods should consult their professional advisers.  

Lifetime Allowance

The reduction in the Lifetime Allowance will create another tier of protection, in addition to Primary Protection, Enhanced Protection and Fixed Protection (2012) and clearly goes against the Government’s plans in 2006 to simplify pensions.   Perhaps only the naive amongst us truly believed ‘pensions simplification’ in 2006 would indeed result in ‘simplification’.

The reduction in the Lifetime Allowance will also have significant implications for individuals who stray above the £1.25 million allowance without utilising protection (see below), with a potential tax charge of 55% on excess funds.  

Capped Drawdown rate increased to 120% of GAD

Individuals have seen significant falls in the level of pension they can draw over the last few years, owing to a double whammy of historically low Gilt Yields and low investment growth. 

The reinstatement of the calculation based on 120% of GAD will be welcomed by clients in Capped Drawdown, as it will allow them to increase the level of pension they can draw by 20% at their next review date. 

Protection against £1.25m Lifetime Allowance 

The government is planning a new protection regime to counter the lowering of the pensions Lifetime Allowance from £1.5 million to £1.25 million.   At this stage is appears two forms of protection will be available:

To protect people from retrospective tax charges, HM Revenue & Customs (HMRC) said it would consult on plans for a ‘Personalised Protection’ regime as part of the changes.   It is said the planned Personalised Protection will give individuals a Lifetime Allowance equal to the greater of the value of their pension rights on 5 April 2014 (up to £1.5 million) and the Standard Lifetime Allowance, which will be £1.25 million from April 2014.  Unlike Fixed Protection 2014 (allowing individuals to simply fix their Lifetime Allowance at £1.5 million so long as no more contributions are made), individuals with Personalised Protection can carry on saving in their pension scheme without losing their protection.   HMRC is also planning to introduce a transitional ‘Fixed Protection 2014’ regime.  This will mean that individuals who apply for Fixed Protection 2014 will have a lifetime allowance of £1.5 million from April 2014. Those who apply for Fixed Protection 2014 will not be allowed to carry on saving into their pension without losing their protection, although those who opt for Personalised Protection will be able to.   However, there are two provisions:

1) Any pension savings above the individual’s Lifetime Allowance will be subject to a Lifetime Allowance charge when benefits are taken;

2)  Personalised Protection will only be available to those with pension pots over £1.25 million on 5 April 2014.

Clearly, details of these changes will become clearer as 2014 approaches and SSAS Practitioner.com will endeavour to keep our clients as up to date as possible.

Female Drawdown rates to be brought in line with Male rates

HM Revenue & Customs have instructed pension providers to provide women with the same, higher, maximum drawdown rate as men from 21 December 2012.  The announcement means providers will need to use male GAD (Government Actuary Department) rates to calculate the maximum pension a woman in drawdown can take each year.  This follows a ruling by the European Court of Justice in March last year banning the use of gender as a risk factor when offering insurance products.  The ruling, based on a challenge by Belgian consumer group Test-Achats, followed advocate general Juliane Kokott’s view that using gender as a risk factor when pricing insurance is discriminatory.  HMRC’s statement read: “Until it becomes clearer how annuity providers will apply the judgement inpractice, the maximum drawdown pension for both men and women aged 23 and over should becalculated using the higher male rates from 21 December 2012.”   The change being announced means that from 21 December 2012 women will be able to take a higher drawdown pension income than before.   Men will see no change in the maximum drawdown pension they can receive. If a female SSAS member is thinking of drawing retirement benefits from their scheme it may be worth their while delaying this until 21 December 2012 as the maximum income allowable will most likely behigher from then.  Any female clients already drawing a pension via ‘Drawdown Pension’ will move onto the new rates at their next review date following 21 December 2012.  It is also possible to review income payments annually on the anniversary of drawdown with the member’s written request.