Public sector pensions

No change to the tax free status of retirement lump sums.
 

John Hutton is to chair the Independent Public Service Pensions Commission. The commission will undertake a fundamental structural review of public service pension provision before the 2011 budget. It will produce an interim report in September 2010 ahead of the Spending Review. 

• Public sector pension increases from April 2011 will be based on the Consumer Prices Index (CPI); this is the same index as will be used as the measure of prices in the "triple guarantee" for the increase in the basic state pension.
• The change to CPI indexation will have implications for the calculation of the GP dynamising factor (broadly speaking this is currently RPI + 1.5%) which we are currently considering in conjunction with colleagues from the BMA Health Policy & Economic Research Unit and Legal Department.

State pensions 

The link to earnings increases for the basic state pension will be restored from April 2011, with a 'triple guarantee' that pensions are raised by the higher of earnings, prices or 2.5%

• The details of the acceleration of the increase in state pension age to 66 will be published shortly. It is thought the increase in state pension age will be brought forward ten years to 2016.
• There will be consultation on phasing out the default retirement age.

Changes to the Finance Act 2010

Proposals for taxing pensions for high earners have been scrapped and will be replaced with something much simpler.
 

Currently the proposals are that high earners will have their pension savings taxed if they earn more than £150,000, where that earnings figure includes the value of the employer contributions.
 

The tax is on a sliding scale, so that those earning over £180,000 will have relief restricted to the basic rate.
 

The Government are saying that rather than implement these changes, which are hugely complicated, they will instead generate the additional tax revenue that these changes would have brought by reducing the annual allowance.
 

The annual allowance is currently £255,000, but the Government is suggesting that it will reduce it to a much lower level - something in the region of £30,000 - £45,000 which is what the National Association of Pension Funds were pushing for in their response to the Government's consultation on Implementing the Restriction on Pensions Tax Relief for High Earners.
 

A lot more people are likely to be affected, but it should be a lot easier to implement and manage and is seen by many commentators as a fairer way to generate the tax.
 

Removal of fixed annuity age 

• End of requirement to buy annuity at 75 from April 2011
• transitional provisions: those reaching age 75 on or after 22 June 2010 who have not yet bought an annuity will have until age 77 to do so, enabling them to defer their decision until after the new rules are finalised.

This change will also apply for inheritance tax purposes to members who die on or after that date.