Pensions News 04/04

April 1st, 2004 by JCB
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ANNUAL BENEFIT STATEMENTS

You will have received your PNPF annual benefit statement for 2003 within the last couple of months and we have had a few telephone calls on various items of information so I thought it might be helpful to clarify a couple of points. Inland Revenue maximum benefits At present your overall pension at normal retirement cannot exceed 2/3rds of Final Remuneration. Final Remuneration can be calculated in several ways and, in a majority of cases will be higher than your Final Pensionable Earnings. It is possible, therefore, in a few cases where your total pensionable service exceeds 2/3rds, that your pension at normal retirement age will have been “restricted” and will be less than the sum you were expecting. Do not let it worry you. The new “simplified” tax regime that is due to be implemented in April 2006 will probably override this restriction. Earnings used in the calculation of pension benefits and death in service lump sum. Very occasionally we find that pensionable earnings show a gradual decline over several years and so Final Pensionable Earnings remain constant for some time. As you know your pension is based on the average of the best three consecutive years out of the last ten. The lump sum payable in the event of death in service, however, is based upon the best single year’s pensionable earnings figure out of the last three, or if higher, your current Final Pensionable Earnings. Therefore, if your pensionable earnings have fallen for more than three years you might notice a reduction in the death in service lump sum. Either that or that it remains constant if the previous year’s earnings are higher.

REVIEW OF FACTORS

The Trustees, in conjunction with the Actuary, have recently completed a review of the factors used by the PNPF and from 10 February 2004 agreed to adopt the Actuary’s recommendations in respect of the factors used for early retirement pensions and the conversion of AVC capital to pension. The factors for existing and new members will remain unchanged down to and including early retirement at age 54, thereafter a 4% p.a. reduction would apply. A distinction will now be made between active and deferred members taking early retirement whereby existing members will have their pension reduced by 6% down to and including age 55, thereafter by 4% p.a. to age 50. New members (pilots who joined after 08.08.02) will have their pensions reduced by 4% p.a. down to age 60, by 6% p.a. down to age 55, by 4% p.a. to age 52 and thereafter a 5% p.a. reduction would apply. The AVC conversion factors have been amended in accordance with the Actuary’s proposals to bring them back to a cost neutral basis.

BUDGET MARCH 2004

On 17th March 2004 the Chancellor delivered his Spring Budget Report. The Chancellor described his budget report as “Prudence with a purpose”, but most commentators considered it a political budget with the clear aim of getting the government re-elected. Nonetheless there is something for all of us in the budget report, but of particular significance are the final proposals by the Government in respect of tax simplification for occupational pension schemes. Simplification of the tax rules on pensions The simplified (there is a misnomer if ever there was one!) regime will come into force on 6 April 2006. At this date all existing pension tax regimes will be replaced by a single universal regime. The implementation date is a year later than originally intended, but will, at least, give all concerned a bit more time to plan for the proposed changes. The Lifetime Allowance (LTA) under the new regime has been confirmed as £1.5m and not the £1.4m originally proposed. The LTA will apply to an individual’s pension savings from all sources. This limit will be increased by steps to £1.8m by 2010. The LTA will be reviewed every five years thereafter. Similarly the annual contribution allowance has been confirmed at £215,000 rising by steps to £255,000 by 2010. This is the annual amount of contributions payable by the employee and employer to all defined contribution arrangements.

PENSIONS EARNING CAP

Until the new regime is implemented we are still stuck with the pensions earning cap which has increased to £102,000 from April.

TAX ALLOWANCES

Personal allowances for those aged under 65 for the new tax year will increase in line with price inflation. Single Person Aged under 65 £4745 Aged 65-74 £66830 Aged 75+ £6950 Married Couple’s Allowance Aged under 65* £5725 Aged 75 and over* £5795 *The married couple’s allowance is only available to couples where one spouse was born before 6 April 1935 and reduces the tax bill by 10% of the amount of the allowance, but not below £2210 if the husband has income above the age income limit. The income limit for age-related allowances was raised to £18,900. The threshold for inheritance tax has been raised to £263,000. Basic State Pension The basic State pension has increased in line with price inflation, by 2.8%, with a minimum annual increase of £100. Single Pensioner £79.60 p.w. Married Couple £127.25 p.w. Deferring State Pension To encourage people to retire later the Chancellor has confirmed that from April 2005 individuals who defer taking their state pension will receive increments of 1/5th of one per cent for each week of deferral (10.4% p.a.) As a further incentive, individuals who defer their state pension for at least one year will be able to take the deferred instalments as a taxable lump sum. The payment will be taxed on the member’s marginal rate and not move the member into a higher tax rate bracket as a consequence of receiving the lump sum. Council Tax Payments Households where at least one person is over the age of 70 will receive a £100 payment to help with council tax. This benefit appears to be available from 2004/05.

My beautiful Bumbles’ antics are no more, she could not wait ’til Spring and slipped away from me on March the 1st.

Debbie Marten Debbie@pnpf.co.uk