Pension Schemes Bill and scheme funding code of practice update
The new Pension Schemes Bill is passing through Parliament and we expect it to be in law by the end of 2020.
The Bill includes changes to support The Pension Regulator’s (TPR’s) plans for a new Code of Practice covering defined benefit scheme funding.
One of the Code’s main focuses, is to improve the security of benefits within UK pension schemes, including the many schemes that no longer have active members.
As well as these inactive members, The Trustee is keen to ensure that the new Code also protects the future benefits of members in open schemes, including some of the open sections in the RPS.
As such The Trustee has been involved in the ongoing developments and provided a response to TPR’s first consultation earlier this year.
A second TPR consultation on its Code of Practice is expected in 2021, along with a separate consultation on regulations. We will remain involved in both and keep you updated on developments.
Minimum Pension Age to rise
The Government plans to increase the minimum age for accessing pension savings, from 55 to 57. This will come into force from 2028. And will tie in with an increase in State Pension Age from 66 to 67. The minimum pension age is then expected to remain ten years below State Pension age moving forward. It is unclear whether these changes will affect existing members of the RPS but we will let you know as soon as we can.
Our say on pension tax relief
Back in September we told you about HM Treasury’s call for evidence exploring the main ways of administering pension’s tax relief. And how that would be used to address an anomaly that currently exists for some low paid employees.
We have submitted our evidence and are now awaiting an update on the next steps, though no dates have been shared by the Treasury yet.
In summary, tax relief on pensions can currently be given in one of two ways:
- Contributions deducted from the employee’s gross pay so that full tax relief is given immediately at the highest rate of marginal tax. This is known as a net pay arrangement
- Contributions deducted from the employees net pay. And tax relief then reclaimed into the scheme at the basic rate. This is known as a relief at source (RAS) arrangement
Most members, will get the same outcome no matter which method is used. However, low earners on a net pay arrangement are missing out on tax relief on their pension contributions. This is because they earn less than the current basic tax threshold of £12,500 and so do not pay any tax on their earnings.