The pensions landscape has altered dramatically in recent years and the latest change – to the money purchase annual allowance – has only just made its way on to the statute book:
- Automatic enrolment for employees in a workplace pension arrangement has finished its roll out, meaning all employers must by now have complied with the rules. The next stage of the process will be an increase in the contribution rates from next April. For employees, the rate will triple to 3% of “band earnings” (£6,032 – £46,350 in 2018/19), whereas for employer contributions rates will double to 2%. In April 2019 there is another increase due, taking the employee rate to 5% and the employer rate to 3%. Most experts agree that the 8% total rate is still too low to achieve an adequate retirement income.
- The new state pension started in April 2016, replacing both the basic state pension and the second state pension (S2P). In the long term the reform will create more losers than winners as the earnings-related element has been removed.
- The Budget confirmed the rates for the full single tier state pension have been confirmed for 2018/19 as £164.35 a week in 2018/19 (a £4.80 increase) and the basic state pension will increase under the triple lock guarantee by 3% to £125.97.
- State pension ages (SPAs) continue to rise, with an increase to 67 due between April 2026 and March 2028. Another rise to 68 is now scheduled between April 2037 and March 2039, although the necessary legislation will not appear for some years. By 2050 – so if you are 36 or under now – you could be facing an SPA of 69.
As mentioned above, legislation has just been passed by parliament to amend the money purchase annual allowance. With retrospective effect to 6 April 2017, it will be a cut from £10,000 to £4,000. This could affect you if you are drawing your pension benefits flexibly, but you and/or your employer are continuing to make pension contributions.
National Insurance contributions (NICs) can cost up to 25.8% of gross pay – up to13.8% for the employer and 12% for the employee. The corollary is that avoiding NICs can save up to 25.8% of pay. A widely applied example of turning NICs to an advantage is in the use of salary sacrifice to pay pension contributions. Instead of the employee making personal contributions out of their net pay, the employee accepts a lower salary and the employer makes a pension contribution. If the employer passes on all of the NICs savings, the pension contribution could be up to almost 34% higher.
If you are due to start drawing an income from your pension plan, make sure that you take advice about your options. When the new rules were first introduced the government launched Pension Wise to help people through the complexities, but this service only offers guidance, not personal advice: you will still have to make the final decisions. The Pension Wise guidance does not attempt to integrate pension choices with your other financial planning, eg estate planning.
If you think about how long you might live with the cost of a wrong choice, it is clear that getting independent advice is the route to take.
The company car benefit scales undergo another uplift in 2018/19, marking another turn of the screw on this still popular fringe benefit. As the table below shows, this is not the end of the story:
· 4% will be added to the lowest scale charges (0g/km-50g/km band), making the minimum charge 13%. This looks targeted on drivers of electric and hybrid vehicles.
· 3% will be added to the 51g/km-75g/km band, taking it up to 16%.
· 2% will be added to all other scale charges.
· The additional charge for a diesel car will rise from 3% to 4% unless it meets the RDE2 emission standards (which it almost certainly will not).
· The maximum charge will stay at 37% and will apply for petrol engine cars with emissions of 180g/km and above and diesel engine cars with emissions of 165g/km and above.
· A further 3% will be added to all scale charges, making the minimum charge 16% (for the 0g/km-50g/km band).
· The maximum charge will stay at 37% and will apply for petrol engine cars with emissions of 165g/km and above and diesel engine cars with emissions of 150g/km and above.
Once again, the changes will increase the tax on low-emission cars significantly because the same 3% addition applies to all but the lowest emission vehicles, whether the existing (2017/18) charge is 13% or 37% (where there is no change).
For example, the scale benefit charge on a Mercedes S500 Hybrid with just 65g/km emissions will rise from 13% in 2017/18 to 16% in 2018/19, increasing the tax payable by nearly a quarter. At the other end of the Stuttgart S500 range, the scale benefit charge on the faster and more polluting S500 AMG S65 with 279g/km emissions will be unchanged at the maximum 37%.
If you are changing your car next year, think ahead of what it will cost you in tax terms – or maybe even consider taking cash instead, if you have the option.
If you currently enjoy ‘free fuel’ but your private mileage is modest, you could be better off paying your own way, even if your employer does not compensate you for the lost benefit. Fuel scale charges now go up each year in line with the RPI, even if fuel prices fall.
‘No rate rise until 2019’
Despite inflation being above the Bank of England’s target – it was 2.6 per cent in July compared with the official target of 2 per cent – the Bank will not raise interest rates until 2019, says the BBC based on a poll of leading economists.
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