This page lists the latest information and advice on current pension schemes.
Single tier pension and GMP/contracting out
With the introduction of the single tier state pension in 2016 comes the end of contracting out of the state second pension, formerly the State Earnings Related Pension Scheme (SERPS).
In the past, people in good occupational pension schemes were allowed to 'contract out' of the non-basic part of the state pension as their occupational pension scheme would provide at least as good benefits as the state second pension. In return, the employee and employer paid lower national insurance contributions. Teachers in the Teachers' Pension Scheme (TPS) fall into this category.
The portion of occupational pension paid that relates to the state second pension (or SERPS) has been increased each year in payment by the government, often referred to as the guaranteed minimum pension (GMP) amount. From 2016, this arrangement will cease and some people will find that their occupational pensions scheme increase overall is not as much as when the GMP portion was increased by the state from 1978-88.
This is likely to affect you most if you are due to retire in the 2016-17 tax year and you have been in the working full-time and contributing to the TPS (and therefore 'contracted out') from 1978 to 1988, when the government paid the GMP increases. This is because if you reach state pension age before April 2016 the new rules will not affect you, and if your state pension age is April 2017 onwards, you will be building up some further entitlement under the new rules.
ATL would like to hear from you if you fall into that category. Please contact the pensions team, indicating that you are affected by this GMP issue.
NB: From 2016, contracting out ends for all and so employees and employers will pay the full national insurance contribution. This will amount to around an additional £30 per month, for an employee earning roughly £34,000 per annum.
Age-related personal tax allowances
Here is information from a Public Service Pensioners' Council briefing in September 2013.
What's the issue?
The government is phasing out the age-related personal tax allowance for pensioners and has stopped new over-65s from having access to age-related tax allowances. This will cut incomes for pensioners with modest occupational pensions. You can send this letter to your MP to tell them about the impact.
Why is the government doing this?
The reason given in the 2012 budget was that a single tax allowance would simplify the tax system and stop so many pensioners having to fill out tax returns. The real reason is that it will save money - £360 million in 2013-14, rising to £1.25 billion a year by 2016-17.
What exactly is happening?
From April 2013 existing age-related allowances will be frozen at their 2012-13 levels (£10,500 for those born between 6 April 1938 and 5 April 1948, and £10,660 for those born before 6 April 1938) until the personal allowance for the under-65s catches up. The personal allowance for the under-65s will be £9,205 in 2013-14. Age-related allowances will no longer be available to people who turn 65 on or after 6 April 2013.
Government policy over the past few years has narrowed the gap between the basic tax allowance and the age-related allowances available to older people.
Personal allowances 2011-12 to 2013-14
|Born after 5 April 1948||Born between 6 April 1938 and 5 April 1948||Born before 6 April 1938|
Why should age-related allowances be kept?
The age-related tax allowance does not exist to feather-bed pensioners. It is a recognition that that as they get older, pensioners have to buy in services in areas such as home maintenance, the cost of which will tend to rise in line with wages. Age-related allowances have been part of the UK tax system since their introduction by Winston Churchill in 1925.
What is the impact on pensioners?
Most private pensions are linked to inflation. If tax allowances are frozen then pensioners' income will be cut in real terms as more of their income will be subject to tax.
What about high-earning pensioners?
High earners don't get the age-related personal allowance. Age-related allowances reduce where the income is above an income limit (£25,400 in 2013-2014) by £1 for every £2 of income above the limit. This applies until the level of the personal allowance for those born after 5 April 1948 is reached.
What does the PSPC want?
The PSPC wants age-related personal allowances to be kept – and for the differential to be restored to at least that which existed in 2011-2012.