United Kingdom

Pensions provisions resurrected in new Finance Bill

September 2017


Staff could soon get an income tax exemption for the first £500 of employer-arranged pensions advice if the second Finance Bill 2017 passes through Parliament.

According to Employee Benefits, the tax exemption for £500 worth of employer arranged pensions advice replaces the current £150 cap. It also means that the scope of advice available widens to include general financial and tax issues relating to pensions.

Aon Employee Benefits senior consultant Adam Burn welcomes the increase in the tax exemption for employer sponsored advice. He says: "Hopefully it will encourage more people to seek advice to assist them to achieve the most beneficial retirement outcomes. However, it does place the onus on employers to implement such arrangements and there is always the question of whether the £500 limit will be sufficient to fund the level of advice necessary for most people entering into retirement who have to deal with the complexities of pension legislation."

Additionally the Bill reintroduces the retrospective application of the money purchase annual allowance (MPAA). The allowance would be cut from £10,000 to £4,000 and will be effective from 6 April 2017, which means, as FT Adviser explains, those who have already accessed their pensions flexibly and "then paid more than £4,000 into it this tax year will face a tax bill."

FT Adviser writer Rosie Murray West suggests that the government "fears pension recycling", which she explains is: "The idea that people might take money out of their pension and then get a tax break from putting it back in."

On the reduction of the MPAA limiting the amount that can be invested in pensions once money has been accessed, Burn says: "[It] seems at odds with the introduction of the new pension freedoms in April 2015 which were heralded as the ability for individuals to use their pensions flexibly in a way that best suited them."

Although these elements were withdrawn from the first Finance Bill, which received Royal Assent on 27 April 2017 following the snap general election in June, the industry was assured by the then financial secretary to the Treasury, Jane Ellison, that they would reappear to be legislated for at the start of the next Parliament.

Speaking to Employee Benefits, Mel Stride, financial secretary to the Treasury and paymaster general, says: "A fair tax system is a key part of our plan to build a fairer society. The UK is a world leader in tackling tax avoidance and evasion, but we must continue to take action to ensure everyone pays their fair share. The Finance Bill will allow us to do just that by preventing companies and individuals from using complicated tax structures to avoid paying the tax they owe, and penalising people that help them to do it."

Aon's Burn says: "It's understandable that the Treasury want to ensure that individuals don't avoid paying the tax that's due, however, it should be remembered that pensions are, ultimately, tax deferral plans where tax is saved when the money is invested but payable when benefits are withdrawn. On this basis, the MPAA seems to miss the point that even if people get tax breaks by re-investing it back into pensions they would still have a tax liability once it was taken out again."



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