June 2010 Budget
George Osborne delivered his first Budget on Tuesday 22 June 2010.
Basic State Pension (BSP) increases
- This will help to maintain the BSP's value over time and will particularly help pensioners on low incomes.
No compulsory annuity purchase at age 75
- Flexibility on when to take pension benefits is a welcome development. It will be interesting to see whether that flexibility will also extend to death benefits and the taking of tax-free lump sum. The way in which those reaching age 75 before next April will be treated suggests that an extension to the age 75 rule is more likely than no age limit at all.
Removal of the post 6 April 2011 tax relief restrictions
- The existing measures would have been very complex and the reduction in annual allowance as an alternative way of restricting the amount of tax relief given on pension contributions is something we would support.
The Budget contains few real surprises for pensions, but we now have more detail on the earlier commitments made by the Coalition Government:
- The personal tax allowance for those aged under 65 will be increased to £7,475 from 6 April 2011. At the same time, the basic rate tax limit will be reduced so that higher rate taxpayers don't benefit from the personal allowance increase. The exact amount of this reduction will be confirmed when September's RPI figure is known.
- From 6 April 2011, the basic state pension will go up by the highest of the increase in earnings, prices or 2.5%.
- The requirement to buy an annuity by age 75 will be ditched from 6 April 2011. A consultation on the detail will be unveiled 'shortly'. Anyone reaching 75 between 22 June 2010 and 6 April 2011 will in effect be able to go into unsecured pension rather than alternatively secured pension. Death benefits will be as for unsecured pension. An annuity or alternatively secured pension won't be required until they reach 77 which would obviously take them past 6 April 2011 when the new rules will apply.
- The restrictions on tax relief for high-income individuals from 6 April 2011 won't go ahead in their present form. Instead the Government is considering reducing the annual allowance to a level that raises at least the same amount of revenue and considers that a figure of £30,000 to £45,000 would achieve that. It has also said that it will consult with employers, the pensions industry and other interested parties to look at issues such as:
- how pension accrual in DB schemes would be valued,
- how to ensure basic rate tax payers aren't subject to the restriction,
- whether there should be options on how to pay any charges,
- and how compliance and delivery would operate in practice.
The anti-forestalling regime currently in place is unaffected.
The information provided is based on our current understanding of the June 2010 Budget and associated documents and may be subject to alteration as a result of changes in legislation or practice.