Real Time Information & Pensions
Budget, Pensions & RTI
The Budget on Wednesday 16 March 2016 will confirm Government's review of incentives for pension savings and the tax relief available to UK pension contributions.
PAYE RTI may prove central to such changes if Government introduces a new annual personal limit on pension contributions at a lower (or flat rate) of tax or creates a new simpler pension saving product with an incentive to save, the so called 'Pension ISA' (or pISA).
This is because employer RTI submissions contain the pension contribution values necessary to manage the tax relief incentive on such products.
Download a Quick Guide:
Available from Budget Day, 16 March 2016.
The big change
Employees' entitlement to tax relief on their pension conbributions, as millions more taxpayers join pensions saving via Auto Enrolment, is all recorded in PAYE RTI. RTI may in the near term support both Universal Credit's welfare reforms and UK pensions saving incentives.
For most SME employers who operate Relief At Source pension arrangements via payroll, paying pension contributions on behalf of employees after tax, there should be few practical changes.
However, the issue for employers of these policy changes is the possible impact on their employees' pension savings balances if their RTI data is incorrect. Employers who cannot demonstrate their RTI data submissions are right may disadvantage themselves and their employees. Employees may not receive such new pension saving incentives from HMRC where there are issues with their employers' RTI returns, without employers incurring significant extra cost.
The earnings and pensions information needed for HMRC to make these calculations may require validated RTI data.
When will this happen?
It is widely expected the Chancellor will allow one year for any new pensions tax relief policy to come into effect, from April 2017. It is also likely he will announce 'anti-forestalling' measures to come into effect when he finishes his Budget speech, if the current policy changes, which would bring the current system of pension tax relief to an end the same day.
The impact on employers and pensions providers could be immediate because they will be required to make the necessary changes to their systems and processes to ensure that they can comply with the new policy. This means they may need to respond straight away to be ready in time.
How will this affect running payroll?
Employers with employees reporting pension contributions via payroll will need to ensure their RTI data returns are accurate and follow the appropriate guidance given at the Budget.
All employers will be affected as they reach their Auto Enrolment staging date and offer a workplace pension to their staff.
The RTI FPS return already reports to HMRC full details of the pension contributions and all the necessary earnings information to allow HMRC to calculate the correct amount of tax relief each employee will be entitled to receive automatically under any new pensions initiatives set out in the Budget.
As with PAYE, getting RTI right and being able to prove timely and accurate earnings data to HMRC and employees will become still more important for employers with the anticipated changes.
If RTI is used under the new arrangements, the Budget should announce or consult on employer best practice to validate RTI data when reporting using appropriate mechanisms and these may include use of the BACS hash process.
DWP already has existing powers to fine employers for not complying with their pension reporting obligations. These may be used as the basis for a compliance regime to ensure employers make the new system of pension tax relief and pension savings incentives work effectively.
Where can I find out more?
PayeRti.org will continue to provide information and will update these pages on Budget day.
To receive notifications of these news and information updates by email as they are published, subscribe to the PayeRti.org news service.
These updates will include the downloadable Quick Guide to these changes for both employees and employers.
In July 2015 the Treasury published a consultation on pensions tax relief called Strengthening the incentive to save. Government aims to make pension tax relief incentives more sustainable for the public purse but also to make the incentives it gives to save for a pension - in the form of tax relief - much more visible to taxpayers.
The Chancellor, has since confirmed he will announce the Government's decision as to the future of pension tax relief and savings incentives at the Budget on 16 March 2016.
Other useful Information
We will add links here to the relevant policy pages on www.gov.uk.