Week ending 16 Dec: Draft Finance Bill 2015|Financial System enquiry|OECD's pensions outlook 2014
Draft Finance Bill 2015
Key employee benefit provisions from the draft Finance Bill 2015 are as follows -
Extending reduction in tax on death to annuities
From April 2015, beneficiaries of individuals who die under the age of 75 with a joint life or guaranteed term annuity will be able to receive any future payments from such policies tax free where no payments had been made from the policy to the beneficiary before 6 April 2015. The tax rules will also be changed to allow joint life annuities to be passed to any beneficiary.
Exemption for paid or reimbursed expenses
Draft clauses regarding the exemption for paid or reimbursed expenses are a major change for employers who pay, reimburse, or provide benefits in kind (BiKs) in respect of expenses incurred by their employees. The current system that allows employers to apply to HMRC for a ‘dispensation’ in respect of paid or reimbursed expenses or the provision of BiKs, where there is no net liability to tax, is to be abolished.
New measures will exempt from income tax certain expense payments and BiKs where they would have been eligible for a deduction had they incurred and paid an amount equal to the expense themselves. The exemption is conditional on the amounts being calculated and paid or reimbursed in an HMRC approved way as defined in regulations and the payer operating an expense system to check that expenses are actually incurred and tax deductible. The payment or reimbursement cannot be provided as part of ‘relevant salary sacrifice arrangements’.
The exemption will also allow employees to be paid a flat or scale rate in respect of qualifying expenses which can either be set by or approved on application to HMRC.
The measures come into effect from 6 April 2016.
Trivial benefits in kind
There is to be a tax exemption for trivial benefits. These are non-cash benefits that cost the employer no more than £50 per employee. The exemption will not be available if provided as part of a salary sacrifice arrangement or in recognition of particular past or future service.
Abolition of the £8,500 threshold
The longstanding £8,500 threshold for higher paid employment will be abolished, meaning that all employees will be taxed on their BiKs and expenses in the same way.
The Finance Bill includes the usual provisions to increase the personal allowance and higher rate tax thresholds. The income tax personal allowance for 2015/16 is £10,600. The basic rate limit will be £31,785 and the higher rate threshold above which individuals pay income tax at 40% will be increased to £42,385.
National Insurance limits are to stay in line with the higher rate threshold. Rates of income tax will remain at 2014/15 levels in 2015/16.
Individual savings accounts (ISAs)
From 2015/16, there will be legislation to allow savers an additional ISA investment allowance where their spouse or civil partner dies on or after 3 December 2014. This allowance will be set at the value held in the deceased person’s ISA on their date of death.
ISA, Junior ISA and Child Trust Fund subscription limits are to be increased for 2015/16. The annual ISA subscription limit for 2015/16 will be £15,240. The annual subscription limit for Junior ISA and Child Trust Funds will be £4,080.
Financial System Inquiry – final report
This report provides a blueprint for the future of the Australian financial system. Its recommendations include the following pension measures –
- Objectives of the superannuation system. Seek broad political agreement for, and enshrine in legislation, the objectives of the superannuation system and report publicly on how policy proposals are consistent with achieving these objectives over the long term.
- Improving efficiency during accumulation. Introduce a formal competitive process to allocate new default fund members to MySuper products, unless a review by 2020 concludes that the Stronger Super reforms have been effective in significantly improving competition and efficiency in the superannuation system.
- The retirement phase of superannuation. Require superannuation trustees to pre-select a comprehensive income product for members’ retirement. The product would commence on the member’s instruction, or the member may choose to take their benefits in another way. Impediments to product development should be removed.
- Choice of fund. Provide all employees with the ability to choose the fund into which their Superannuation Guarantee contributions are paid.
- Governance of superannuation funds. Mandate a majority of independent directors on the board of corporate trustees of public offer superannuation funds, including an independent chair; align the director penalty regime with managed investment schemes; and strengthen the conflict of interest requirements.
Read the full report here (this link will take you to an external site)
OECD Pensions Outlook 2014
This 2014 edition of the Organisation for Economic Co-operation and Development (OECD) Pensions Outlook examines the ever-changing pensions landscape. It looks at pension reform, the role of private pensions and retirement savings. Population ageing and longevity risk is examined as are the means of increasing coverage and providing automatic enrolment.
According to the OECD, the UK’s decision to abolish the effective requirement to annuitise DC savings has the potential to undermine the success of the automatic-enrolment reforms.
OECD welcomed auto-enrolment, but added that coverage rates were better under compulsory systems.
Longevity research for insurers and pension schemes
A jointly commissioned research project by the Institute and Faculty of Actuaries (IFoA) and the Life and Longevity Markets Association (LLMA) has published a new longevity risk methodology allowing insurers and pension schemes to assess longevity basic risk. This research collaboration effort aims to promote the use of simpler, easier to implement index-based longevity solutions.
According to the research index-based hedges have the capacity to provide for effective risk and capital management, offsetting the increased risk that arises from members living longer than anticipated.
While traditionally longevity swaps were the preserve of large schemes, it is believed that this research might pave the way for index linked longevity swaps to become more accessible to smaller schemes and insurers.
Social Security Class 3A Contributions (Units of Additional Pension) Regulations 2014
In the December 2013 Autumn Statement the government announced that those reaching State pension age before 6 April 2016, and who are entitled to a state pension, would be able to pay a new class of voluntary National Insurance contribution (Class 3A) to boost their additional state pension.
These Regulations are designed to give those who do not qualify for the new state pension, and who may have lost out because of the structure of the legacy state second pension system, the opportunity to increase their state pension in retirement.
The maximum number of units of additional pension that a person can obtain is 25. The Regulations also set out the amount a person will receive in return for each unit of additional pension.
Number of workers auto-enrolled reaches 5 million
The spotlight shines on staff at the Rose Theatre in Kingston, as they help celebrate a pensions milestone. The south London playhouse has taken the number of people now automatically enrolled into a workplace pension across the UK past the 5 million mark.
And, along with the dramatic milestone, Pensions Minister Steve Webb announces today that autumn 2016 will see the launch of a new system in which small pension pots will automatically follow workers from job to job.
On a related note, a new automatic enrolment communications tracking research report contains the findings of tracking research commissioned by the Department for Work and Pensions (DWP) Communications Directorate. The research tracks attitudes and behaviours (intended and actual) in relation to workplace pensions in general and automatic enrolment specifically. It also evaluates the success of the We’re all in (previously “I’m in”) advertising campaign in influencing these. The campaign originally launched in mid-September 2012. This report discusses the post-campaign research conducted to evaluate the sixth burst of campaign activity during June 2014.
Read the full report here (this link will take you to an external site)