Week ending 13 March 2020
Rishi Sunak’s first Budget contained a key pensions tax announcement. The income limits for the tapered annual allowance are to be increased by £90,000 each for the 2020/21 tax year. This is designed to ease the problem of senior clinicians leaving the NHS due to pension tax charges, but it applies to all high earners.
The first income test (threshold income) will be increased from £110,000 to £200,000 (threshold income includes all taxable income but excludes pension contributions). So, for anyone with income under £200,000, their 2020/21 annual allowance will be the standard £40,000. The second income test (adjusted income) includes pension contributions and is increased from £150,000 to £240,000. This is the point at which tapering of the annual allowance will begin (the standard annual allowance will reduce by £1 for every £2 by which adjusted income exceeds £240,000). The minimum annual allowance is being reduced from £10,000 to £4,000, so the latter will apply to those whose adjusted income is £312,000 or more.
There were also the following expected pension announcements on Budget day:
- the lifetime allowance will rise to £1,073,100 from 6 April 2020
- a call for evidence is due shortly on the issue of anomalous pension tax relief for non-tax payers
- the long-awaited consultation on reform to the RPI methodology has been published and is open until 22 April 2020 (its premise is that RPI will change, the key question being when).
The Pensions Regulator has published a statement setting out the issues which trustees need to consider in response to COVID-19 (coronavirus). Trustees are expected to have monitoring and contingency planning in place to enable them to deal with any problems that arise.
During a turbulent week for investment markets, the Bank of England cut the bank base rate from 0.75% to 0.25% in a move designed to help with the economic impact of the coronavirus outbreak.
The Government has published illustrative regulations setting out the provisions for Collective DC (CDC) schemes. These regulations come under the high-level framework set out in the Pension Schemes Bill (which has now reached the Report stage of its journey through Parliament). These include requirements for applying for authorisation of a CDC scheme, calculating benefits, valuations and events which trigger the involvement of TPR. The regulations are based on those developed for master trusts.
In the news this week, the pensions world continues to be dominated by the impact of the Covid-19 pandemic, with the Regulator publishing more guidance for employers, the FCA delaying the implementation of its drawdown investment pathways and two household name companies deferring (or missing) their deficit recovery contributions.
Over the autumn of 2019, BAC conducted an extensive survey of the actions which companies are taking to manage their defined benefit (DB) and defined contribution (DC) pension arrangements.
2019 marked 50 years since Neil Armstrong walked on the moon and this was obviously on the Queen’s mind in her Christmas message as she talked about a bumpy year but one with small steps of progress as well. In terms of pensions, it also felt like a year of small steps and occasional bumps. In this quarter’s Arena, we take a positive look back at 2019, as well as looking forward to some expected pension developments over 2020.
Despite the very different circumstances facing individual companies, bac‘s autumn 2019 survey reveals a surprisingly consistent picture of the actions which companies are finding most attractive to manage their DB and DC pension arrangements.
As DB liabilities have become legacy issues to be managed, governance has become the umbrella term for a broad range of risk management tools. In this publication, we look at the DB governance solutions we have helped our clients to implement.
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