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UK Pensions Speedbrief: 6 April 2016 – All change please!

  • United Kingdom
  • Pensions

30-03-2016

As ever, multiple legislative changes affecting pensions will come into force on 6 April. This year these include changes to the annual and lifetime allowances, new exceptions from auto-enrolment and new disclosure requirements for plans that provide money purchase benefits. The key changes are summarised in the table below.

Key changes from 6 April 2016

Change

Key actions

‘Persons with significant control’ regime From 6 April 2016, most companies (including corporate trustees) will be required to keep a register of individuals or legal entities that have control over them.

From 30 June 2016 onwards, companies will have to deliver this information annually to Companies House when making a Confirmation Statement (which replaces the Annual Return from June 2016).

Employers and corporate trustees:

  • identify and record persons with significant control

Annual allowance – From 6 April 2016, the pensions annual allowance will be reduced for many individuals with taxable income of over £150,000 per year (which includes employer and employee pension contributions as well as income from other sources such as investments, rentals and trades). For individuals with taxable income in excess of £210,000 per year the annual allowance could be reduced to as low as £10,000. Read more.

Also from 6 April, all pension input periods for arrangements under a registered pension scheme will be aligned with the tax year.

Employers:

  • assess which staff may be affected
  • decide approach
  • communicate with staff

Trustees:

  • communicate with members
  • review circumstances in which annual allowance statements need to be issued

Reduction in the lifetime allowance The standard lifetime allowance for pensions will be reduced to £1 million (from £1.25 million) from 6 April 2016. Two forms of transitional protection - fixed protection 2016 and individual protection 2016 - will be available from 6 April 2016 to individuals who may be affected by this.

Note: Individuals who intend to apply for fixed protection 2016 must stop benefit accrual in all registered pension schemes by 5 April 2016 (with limited exceptions).

Trustees:

  • inform members about reduced lifetime allowance and availability of transitional protection

Retirement ‘risk warnings’ From 6 April 2016, trustees of pension plans that provide money purchase benefits will be required by law to give members generic risk warnings at the time when they provide them with the means to access those benefits. Trustees will also need to include a statement about the importance of reading the risk warnings and accessing pensions guidance and advice.

Trustees:

  • review timing and contents of existing risk warnings

New auto-enrolment exceptions From 6 April 2016, employers will have a choice over whether or not to automatically enrol or re-enrol: 

  • company directors
  • members of an LLP, who are in receipt of qualifying earnings and who are not treated as being employed by the LLP for income tax purposes.

Note: Under section 863A of the Income Tax (Trading and Other Income) Act 2005, salaried members of an LLP may be treated as employees for tax purposes and so not all salaried members will be covered by the latter exception.

The Government also plans to introduce a similar exception as soon as possible after 6 April 2016 for individuals who register for transitional protection following the reduction in the lifetime allowance on 6 April.

Employers:

  • decide whether to make use of new exceptions

Ban on active member discounts From 6 April 2016, trustees of pension plans used as qualifying schemes for automatic enrolment purposes will be banned from applying different charges to deferred members compared with those applied to active members.

This does not prevent an employer paying for some or all of the charges on behalf of its current employees, provided the overall charge applied to active and deferred members is the same. Similarly, trustees can apply different charges to different members provided a deferred member is not paying more than they would have done had they still been an active member.

Employers and trustees:

  • review charging structure for your plan
  • eradicate any differential in the charges applied to deferred and active members under the plan before 6 April

Ban on member-borne commission – From 6 April 2016, “service providers” will be prevented from levying a charge on a member of a qualifying scheme who is, or was, a worker of a plan employer to fund commission payments to advisers for advice or services provided to employers or members (with very limited exceptions). Read more.

The ban will cover all money purchase benefits under a qualifying scheme, including AVCs (even if the AVCs are the only form of money purchase benefit under the plan).

Initially, the ban will only apply to commission arrangements entered into on or after 6 April 2016 and to pre-existing arrangements that are varied or renewed after that date. The Government intends to consult later this year on how to deal with existing arrangements.

Employers and trustees:

  • determine whether ban applies to your plan

Trustees:

  • comply with requirement to notify all “service providers” if your plan is a qualifying scheme (for existing qualifying schemes this must be done within 3 months of 6 April 2016)

New state pension Individuals who reach state pension age on or after 6 April 2016, will receive the new single tier state pension in place of the current state pension. The starting rate of the full new state pension for a single person will be £155.65 per week. Transitional rules will apply to individuals who have built up entitlement under the current system. Read more.

Where a plan’s benefit design is integrated with the current state pension system (for example, there is a basic state pension offset or definitions refer to the state second pension) the rules may need to be amended to reflect the changes to the state pension from 6 April 2016.  

Employers and trustees:

  • review plan rules to determine if amendments are needed

 

Trustees:

  • inform members about new state pension

End of DB contracting-out The introduction of the new single tier state pension will mean the end of defined benefit (or salary related) contracting-out from 6 April 2016. Contracted-out members and their employers will have to pay higher National Insurance Contributions (NICs) from that date.

The Government has introduced a statutory override to enable employers to amend their DB pension plan in order to offset the additional NICs that will become payable.

 

Employers and trustees:

  • implement any amendments to pension plan

Trustees:

  • communicate with affected members by 6 July 2016 at the latest
  • register with HMRC’s GMP reconciliation service by 5 April 2016