Business Owners: Pension Changes

Posted by siteadmin on Tuesday 22nd of March 2016.

A raft of important pension changes for employers and employees take effect in the year starting on 6 April 2016.

Auto-enrolment into pension arrangements began to be phased in three and a half years ago. During the first part of that period it was mostly the larger employers that had to put auto-enrolment in place. However, as the employer size shrunk (now to under 30 employees) more problems have begun to emerge. The Pensions Regulator handed out over 2,500 compliance notices and 1,000 fixed penalty notices in the last three months of 2015.About 500,000 employers are due to begin auto-enrolment in 2016.

  • As happened last year, the earnings threshold for auto-enrolment will not rise in line with the personal allowance for the new tax year and will thus remain at £10,000.
  • Changes to women’s state pension age (SPA) continue to work through the system. On 6 April 2016 women’s SPA will be around 63, on its way to 65 in November 2018. Two years later both men and women will share an SPA of 66.
  • For those reaching their SPA on or after 6 April 2016, the new single-tier state pension regime will apply, replacing both the basic state pension and the state second pension (S2P) and its predecessors. Defined benefit scheme contracting out ends at the same time, leading to an increase in employer’s National Insurance contributions, if there are still active members of such a scheme. Ironically the main employer hit by this change will be the public sector; most private sector schemes are now closed.

Further technical changes to pension flexibility will occur in summer 2016. For example, the tax treatment of serious ill-health lump sums will be aligned with that of lump sum death benefits, meaning that the serious ill-health lump sum can be paid tax-free (when the provider is content to do so) when someone aged under 75 has less than a year to live but has already accessed their pension. At age 75 or beyond, personal marginal rates of tax will apply.