There is no surprise that the Budget contains little on pensions as major changes have been made to State pensions over the last year, while radical changes are presently under consultation with regard to private pension provision. The Government introduced the State Second Pension in April 2002, while the Pension Credit is due to be implemented from October this year. The Government's intent to make significant changes to private pension provision has been outlined in the Green Paper, and more particularly the consultation paper on pensions tax simplification, both of which were issued at the end of last year.
The DC tax regime continues to provide a number of highly attractive tax planning opportunities, while pension planning will remain very much to the fore in two other areas:-
- planning for the introduction of the new simplified tax regime. Unlike earlier pension reforms the new simplified tax regime, due to be implemented in April 2004 (or in 2005), will apply to members of all existing pension tax regimes. Its centrepiece is the introduction of a new Lifetime Limit on a member's retirement fund that may benefit from a tax favoured treatment. There will, however, be transitional provisions for members of existing schemes and many members with retirement funds at or near the proposed Lifetime Limit will be seeking advice on what pension provision to make in anticipation of the new simplified regime
- the increases to NI contributions for employers, employees and the self-employed from April 2003 will open up pension planning opportunities. The increase in employer and employee NI contributions will make the use of salary sacrifice to fund pension contributions even more attractive.
The increase in Class 4 NI contributions for the self-employed will potentially result in an increase in the individual's 2003/04 balancing payment and their first payment on account for 2004/05 both due on 31 January 2005. The impact of this can be reduced or eliminated by the payment of a suitably sized personal pension/stakeholder pension contribution in 2003/04.