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Government’s pensions changes are a ‘shambles’, says wealth manager

The government’s approach to pensions is shambolic, believes a wealth manager, who has criticised the changes to lifetime relief allowance announced by chancellor George Osborne in yesterday’s (5 December 2012) Autumn Statement.

6 December 2012

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“The government’s pension policy is a shambles,” said Colin Lawson, managing partner at Equilibrium Asset Management. “How can anyone plan for the future when they keep changing the rules?

“There are huge penalties currently for over-shooting the allowance, so why should people contribute to a pension when they don’t know how they might be affected in the future?”

The government announced in its Autumn Statement plans for a reduction in the annual allowance from £50,000 to £40,000. This comes after the allowance was cut from £255,000 to £50,000 in last year’s Budget.

Osborne also revealed that the lifetime limit on pension contributions would be reduced from £1.5m to £1.25m for the year 2014/15.

Lawson believes the changes will de-incentivise the public. “Currently, a fund of £1.25m will buy a 65-year-old male a pension of approximately £30,000 (inflation linked and with a 2/3rd spouses pension). This will be further eroded by inflation and could only be worth £20,000 in today’s terms in ten years’ time, if the lifetime allowance doesn’t increase with inflation too.

“Annuities now have to be purchased on a unisex basis, thus penalising males. This might seem like a large fund but it isn’t really a large income so why reduce the allowance? Today’s changes create no incentives to save into a pension.

“The government supposedly wants to encourage saving for retirement, but with reduced lifetime allowance and contribution limit for tax relief, we think pensions will come under further attack in the future and higher tax relief will be limited.”

The chancellor’s announcement that the maximum amount drawdown savers can take would be restored to the 120 per cent limit drew a more positive response from Lawson. “Good news for pensioners though with some respite in terms of the income they can take via drawdown – the increase in the percentage of maximum levels that can be taken will help compensate for the reduced income levels on which this percentage is base,” he said.

In 2010, the maximum amount savers could take their pension income at was reduced from 120 per cent of the annuity you could buy to 100 per cent to prevent pensioners from depleting their pots too quickly.

The government has been under pressure in recent months to secure a better deal for people in drawdown, who have been seeing their retirement incomes plummet as a result of both falling gilt yields and the 2010 cut to maximum annual income.

Autumn statement: main changes


  • A general anti-avoidance rule (GAAR) is to be introduced in April 2013 (as expected).
  • Three schemes involving loan relationships and derivative contracts are to be closed with effect from 5 December 2012. New legislation will:
a) apply to a ‘mismatch’ scheme to which a single company is party (at the moment the mismatch scheme rules only apply where a company is part of a group); 
b) exclude property return swaps between connected companies (or where avoidance is involved) from the derivate contract rules; and
c) apply to manufactured payments with respect to a benefit received in any form (e.g. the release of a liability to pay an amount).
  • Individuals will not be able to claim relief for the payment of royalties from 5 December 2012.
  • SDLT anti-avoidance rules are to be published next week.
  • HMRC’s data gathering powers are to be extended to enable HMRC to seek information from merchants in respect of credit and debt card payments made by their customers with a view to identifying businesses which do not declare their full sales or operate in the ‘hidden’ economy.
  • From May 2013 HMRC is to focus upon identifying offshore trusts which are used to ‘hide income and wealth overseas’ and investigate offshore property ownership.
  • The government intends to seek to enter into agreements with other jurisdictions providing for information exchange on a similar basis to the FATCA Agreement entered into recently with the United States.  (For our note on FATCA click here).
No new taxes... 
  • No ‘new’ homes tax (or ‘mansion tax’) will be introduced (although the new annual SDLT charge on residential property with a value of over £2 million owned by a non-natural person) will go ahead in April 2013).
  • The fuel duty rise (three per cent) is to be cancelled (this had been due to be imposed in January 2013).
Help for businesses
  • The small business rate relief scheme will be extended to April 2014 (i.e. for one more year).
  • All newly built commercial property completed between 1 October 2013 and 30 September 2016 will (subject to state aid limits and further consultation) be exempt from empty property rates.
  • Small self-employed businesses with receipts of up to £77,000 will be able to opt for a cash basis of computing their corporation tax liability from April 2013.
  • New tax incentives for shale gas will be introduced, subject to consultation.
  • The annual investment allowance will be increased from £25,000 to £250,000, for two years, from January 2013.
  • The tax credit for video games, animation, and high end television will be introduced at the rate of 25 per cent of qualifying expenditure from April 2013.
  • The main corporation tax rate to be reduced by one per cent from April 2014 (to 21 per cent) but banks excluded from this.
  • The bank levy to be increased to 0.13 per cent from 1 January 2013 and, from that date, any amount paid in respect of a foreign bank levy will not be deductible for corporation tax purposes.
Measures affecting individuals
  • The lifetime allowance for pension schemes will be reduced to £1.25m and annual allowance to be reduced to £40,000 from 2014-2015 (some potentially complex rules to allow an individual to ‘protect’ their pension up to the current lifetime limit of £1.5m are being considered).
  • The ISA limit will be raised to £11,500 from April 2013 and the government will consult on holding AIM shares in ISAs.
  • The higher rate threshold for income tax, CGT annual exemption amount, and IHT nil rate band to be increased by one per cent in 2015/16.
The future – Budget 2013
Budget 2013 will include:
  • an update on the government’s plans to help incentivise employee ownership;
  • an update on HMRC’s review of the use of offshore employment intermediaries to avoid income tax and national insurance contributions; and
  • the publication of a ‘comprehensive’ offshore avoidance strategy. 

Source: Davenport Lyons

Categorised in:

Tax & Wealth structuring Pensions