The Parliamentary and Health Services Ombudsman has confirmed that the Department of Work and Pensions (DWP) failed to correctly advise individuals with Guaranteed Minimum Pensions (GMP) who would stop receiving inflation top ups after the new state pension was implemented in 2016.
The DWP should have explained that the end of contracting out would be disadvantageous to the increases that savers with GMP would receive but were found to be “not open and accountable” on the topic.
The Times reported that the ombudsman had stated,
“The DWP failed to fully acknowledge and explain negative impacts of pension reforms to those with large periods of contracting out, due to reach state pension age shortly after April 2016.”
The ombudsman launched an investigation into the issue following a complaint but those who have suffered financially due to the change have currently got no entitlement to compensation. The DWP will now have three months to respond to the Ombudsman in relation to the action that it will take to ensure that affected parties receive correct communications on the issue of their state pensions. Contracting out allowed defined benefit schemes to opt out of the state earnings-related pension scheme (SERPS) to ensure that workers were not receiving triple pension benefits combining a basic state pension, SERPS and an earnings-related occupational pension. The decision to contract out meant that both employee and employer could pay a reduced rate of national insurance, on either code D or N on payroll, but that the worker did not build up rights under SERPS if their scheme offered a GMP. From 1978-1997, GMP did not have to be increased along with inflation but from 1988 – 1997 this changed and was introduced with a maximum cap of three percent per year.
With the arrival of the new state pension in 2016, contracting out and SERPS were abandoned, along with inflation increases for private sector schemes. Inflation increases continued for public sector staff.
Experts have commented that it would be nigh-on impossible to determine who has been affected by this complex situation, but the Ombudsman have addressed that DWP failed to correctly advise members and will await the response relating to how they will rectify this.
Back to Contents
Individuals failing to report correct pension information on tax returns could receive large tax bills 28 November 2019
In the Pensions schemes newsletter 115 – November 2019, HMRC issued a reminder for scheme members to disclose details of their annual allowance charge on their Self-Assessment returns or face receiving substantial tax bills.
HMRC is aware that there are a large number of individuals who have not reported the fact that they have breached the annual allowance for pension contributions, which currently stands at £40,000. The newsletter prompted scheme administrators to remind any affected members of the requirement to declare the fact that they had exceeded the annual allowance on their Self-Assessment tax returns. Pension schemes only inform members where they have exceeded the £40,000 annual allowance but would probably not advise in circumstances where the ‘tapered annual allowance’ applies. The range for annual allowance limits for individuals affected by the tapered annual allowance could range from anything between £10,000 and £40,000. The issue is that the scheme may not be aware of the fact that a member is impacted by the tapered annual allowance and so would not know to advise them that their allowance had been breached if, for example, this allowance only amounted to £20,000 per year. The member may also be unaware of the rules surrounding the tapered annual allowance and could potentially include incorrect information on their Self-Assessment return. This could result in a large tax bill for the individual. The tapered annual allowance means that for every two pounds of adjusted income over £150,000, an individual’s annual allowance can be reduced by one pound. This could result in an allowance of £10,000 for individuals with an adjusted income of £210,000 or above.
The Chartered Institute of Payroll Professionals
Payroll: need to know
cipp.org.uk
Page 570 of 629
Made with FlippingBook - Online magazine maker