The Autumn Budget was delivered recently by the Chancellor, Rishi Sunak, and there were some pension-related announcements.
A fix for lower earners not receiving tax relief on contributions
A fix for lower earners, who are part of schemes where pension contributions are taken from their gross salary before income tax is deducted, and who have not been receiving tax relief on their contributions, has been proposed. These types of schemes
are also known as ‘net pay schemes’.
The ’net pay’ method of pension tax relief is used by most occupational schemes. Under this method pension contributions are deducted from your pay before any tax is deducted. You then pay tax on your UK earnings minus your
pension contribution. As a result, your tax bill will usually be lower and you get more take-home pay.
However, for members who do not earn enough to pay income tax, they currently don’t benefit from this tax relief.
To resolve this, a system will be introduced to make top-up payments directly to low-earning individuals that are saving in net pay schemes from the year 2024.
Normal Minimum Pension Age increase The Budget also referred to the Finance Bill 2021-22, which is expected to include a measure to increase the Normal Minimum Pension Age (NMPA) from 55 to 57 in April 2028.
The NMPA is the earliest age most pension savers can access their pensions without incurring an unauthorised payments tax charge unless they retire due to ill-health.
The NMPA has been 55 since 6 April 2010, unless a member has a Protected Pension Age (PPA) which allows them to take their pension benefits between 50 and 55.
Within the draft legislation, there is an exception for certain uniformed services pension schemes.
The draft legislation still needs to work its way through Parliament therefore is subject to change.
Pension Triple LockAs previously announced, the Budget confirmed the earnings element of the ‘Triple Lock’ will be suspended in the 2022-23 tax year.
The triple lock is a government commitment to increase the value of the state pension by highest of:
• Average wages or
However, due to concerns that the coronavirus pandemic and the end of furlough scheme has artificially inflated wages, the government has suspended the triple lock for the 2022-23 tax year. This means that the state pension will either rise at the rate
of inflation or 2.5%.