04 April 2011
In the recent Budget, the Chancellor made a number of pension related announcements.
These included accepting Lord Hutton’s recommendations for the reform of public sector pensions as a basis for further consultation over the details of the schemes, with the Chancellor saying “there should be no cherry picking from either side” in relation to the proposals. In the autumn the Government will set out its proposals as to how to take forward the consultation process for proposed changes to the Schemes.
The Government says its case for increasing employee contributions by an average of 3% per annum from April 2012 has been reinforced. Negotiations between the unions and the Government on this particular point are ongoing, with further information due later in the year.
On a related matter, from April 2011, the University’s employer contribution rate to the Merseyside Pension Fund has increased to 15.7% of support staff payroll (from 14.8%). However the pension scheme has asked that we split the payment between future and past service costs. In the University’s case this equates to 10.5% of payroll for future costs in addition to a cash payment of approximately £2m p.a. for the past service deficit. For completeness, the University’s employer contribution rate to the Teachers’ Pension Scheme is currently 14.1% of teaching staff payroll.
Pension Taxation Changes
The Government is to change the tax limits applying to pensions from April 2011 and April 2012. The changes, which are being made to the Lifetime Allowance and the Annual Allowance limits, will usually only affect high earners with long service. However it is possible that more moderate earners with long service who, for example, are promoted by more than a grade or who pay significant amounts in Additional Voluntary Contributions (AVC) may be affected. Members who breach the new tax limits will suffer a tax charge although, importantly, you will be able to carry forward any unused tax relief from the previous 3 years to offset against the charge.
As a general rule of thumb if you are promoted and receive a pay rise of £10k then you may be affected if your salary before promotion was £50k or more and your pensionable service exceeds 10 years. If your pensionable service exceeds 20 years then you may be affected if your salary before promotion was £20k or more.
There is no single set of circumstances that will determine if you are affected by the new tax regime and the following factors can all play a part:
- Substantial salary rise
- Combining and transferring in past pensionable service
- Purchasing large amounts of additional pension
- Paying significant amounts in AVCs
- Ill-health retirements
The taxation changes affect an individual’s personal tax liability and, aside from highlighting the issues to you, the University has limited scope to prevent a tax charge occurring and cannot provide you with financial advice. However if you have any queries about the changes please contact Jayne Brown,Pensions Manager on ext: 8756 or email J.Brown@ljmu.ac.uk