2013 Budget Summary

George Osborne delivered his fourth Budget on Wednesday 20 March 2013. Given the changes to the annual allowance and lifetime allowance announced in the Autumn Statement last December, he thankfully resisted the temptation to reduce them any further.
Our view

We're thankful that the Chancellor has resisted the temptation to reduce further the annual allowance and lifetime allowance limits.

The proposal to allow pension schemes to invest in residential property (albeit in a restricted way) would have to be carefully designed to ensure that there are no unwanted consequences such as an unsustainable residential property boom and/or a diversion of the main purpose of these pension schemes from pension provision.

We look forward to being involved in the discussions on the changes to the underlying assumptions used to provide drawdown rates.

There are various parts of the Budget that are worth commenting on. Here's our take on them, with links to Treasury or HM Revenue and Customs if you would like more details.

Personal allowances

Page A1 of HMRC - Overview of tax legislation and rates

As we already knew, the personal allowance for the 2013/14 tax year is £9,440 (up from £8,105 for 2012/13), at the same time the limit for basic rate tax reduces from £34,370 to £32,010.

From 6 April 2014 the personal allowance is being increased to £10,000, however the basic rate tax limit is being reduced to £31,865.

From 2015/16 onwards, the personal allowance will increase by the Consumer Prices Index (CPI) each year.

State pensions

Sections 1.187 - 1.193 HM Treasury - Budget 2013

The Budget confirmed George Osborne's comments at the weekend and the Ministerial Statement made yesterday that the introduction of the single tier state pension will be brought forward from April 2017 to April 2016 (the original introduction date).

When the single tier pension is introduced, the State Second Pension will close and contracting-out will no longer be possible. This means that a member of a contracted-out defined benefit occupational pension scheme and their employer will see their National Insurance contributions increase as they start to pay contracted-in National Insurance contributions.

There will be a statutory override allowing employers to increase employee contribution rates to existing defined benefit occupational pension schemes to cover the increased National Insurance costs.

Whether this will result in an increased rate of closure of defined benefit schemes remains to be seen.

Lifetime allowance - individual protection

Section 2.10 of HMRC - Overview of tax legislation and rates

 

As we knew already from the Autumn Statement, the lifetime allowance is reducing from £1.5 million to £1.25 million from 6 April 2014. The Government has been consulting with the pensions industry since the Autumn statement on the feasibility of introducing an additional form of protection called personalised protection. The proposal is that personalised protection will be available to pension scheme members with pension pots totalling at least £1.25 million at 6 April 2014. It would allow them to have a personal lifetime allowance of the greater of the value of their pension rights on 5 April 2014 (up to an overall maximum of £1.5 million) and the lifetime allowance (£1.25 million from April 2014), however further contributions will still be able to be paid without loss of protection.

Apart from apparently renaming it individual protection, consultation will continue on the actual details and provisions will now be included in the Finance Bill 2014.

Lifetime allowance - primary and enhanced protection

Section A26 of HMRC - Overview of tax legislation and rates

Those with existing primary or enhanced protection which doesn't apply to tax free cash will retain a right to tax free cash of up to 25% of £1.5 million.

Where those with primary protection have taken some benefits before 6 April 2014 and then take further benefits after 6 April 2014, the pre 6 April 2014 benefits will be revalued as if references to the lifetime allowance were to £1.5 million.

The Pensions Regulator

Section 1.155 of HM Treasury - Budget 2013

The Pensions Regulator (TPR) will have a new objective to consider the growth prospects of sponsoring employers when setting deficit recovery plans. The precise wording of this new objective will be set out in legislation that the Department for Work and Pensions (DWP) will publish later in spring 2013. The new objective will be subject to a review after 6 months and TPR will revise its Code of Practice to reflect this new objective as soon as possible in 2013.

Pension Drawdown

Section 2.59 to 2.60 of HM Treasury - Budget 2013

The Government confirmed the increase in the Government Actuary's Department (GAD) limit for capped drawdown from 100% to 120% of the GAD relevant annuity for pension years starting from 26 March 2013.

However it also announced that the Government Actuary's Department has been commissioned to review the pensions drawdown table and the underlying assumptions used to provide drawdown rates to make sure they continue to reflect the annuity market.

Residential property in SIPPs and SSASs?

Section 2.18 of HM Treasury - Budget 2013

 

The Government are to consult on whether the conversion of commercial property in high streets and town centres with unused space suitable for conversion to residential use could be encouraged by allowing SIPPs and SSASs to invest in the property.

 

Published 20 March 2013

The information provided is based on our current understanding of the Budget 2013 and associated documents and may be subject to alteration as a result of changes in legislation or practice.

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