Wednesday 5th December 2012
Commenting on the reductions on the pensions annual and lifetime allowance eligible for higher rate tax relief announced by the Chancellor today, Steve Simkins, KPMG’s head of public sector pensions, said:
“The new pensions Annual Allowance, reduced to £40,000 as part of the government’s drive to reduce the deficit, will leave many public sector workers facing unintended consequences, bearing the brunt of the changes.
“This change, together with the reduced Lifetime Allowance of £1.25m also announced today, is designed to restrict pensions tax relief for people earning over £100,000 a year. However, public servants earning as little as £40,000 a year could incur a tax charge because of public sector pay scales”
“To add to this, public sector employers are committed to fixed pension arrangements and so are unable to respond to the additional tax charges by reducing benefit accrual in the way private sector employers can.
“This means that talented teachers, doctors and civil servants will see further benefit reductions in addition to the Hutton benefit reforms.
The changes
In his Autumn Statement the Chancellor has announced a reduction in the pensions Annual Allowance, from £50,000 pa to £40,000 pa, effective from 2014/15.
This reduces the amount of tax-relieved savings which can be made each year into a pensions arrangement. For defined contribution schemes, the effect is straightforward – a reduction of £10,000 pa in annual contributions. This will affect relatively few people in the short term.
Example:
Someone with 30 years’ service, receiving a 10% salary rise, would be subject to a tax charge if their salary was at least £43,000 pa.
A reduction in the Lifetime Allowance, from £1.5 million to £1.25 million, from 2014/15 is also announced. This will cause more people to pay extra tax at retirement, if their benefits exceed this limit. For someone receiving a defined benefit pension, this equates to a pension of £62,500 pa.
Ends
Follow us on twitter: @kpmguk #AS2012
www.kpmg.com/uk/autumnstatement
For further information please contact:
Alison Anderson, KPMG Corporate Communications
T: 0113 254 2980 / 07733 453 065 Email: alison.anderson@kpmg.co.uk
or
KPMG Press office, Tel: +44 (0) 207 694 8773
About KPMG:
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 11,000 partners and staff. The UK firm recorded a turnover of £1.7 billion in the year ended September 2011. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 152 countries and have 145,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.
