Businesses will need to be prepared for a number of changes in the pensions regime over the next few years.

State pension reform
The government will reform the state pension into a single-tier pension for future pensioners. The new system will be introduced early in the next parliament and will be set at a level above the means-tested standard guarantee credit and all state pension records will be recognised. The government will bring forward further detail in a white paper in spring 2012, with final decisions on the detailed implementation of the policy being taken at the next spending review.

State pension age
The government will commit to ensuring the state pension age is increased in future to take into account increases in longevity, and will publish proposals at the time of the Office for Budget Responsibility’s 2012 Fiscal Sustainability Report.

Commuting small personal pension funds
As announced in the Autumn Statement 2011, the government will extend the existing tax commutation rules to allow individuals aged 60 or over to commute funds of £2,000 or less held in personal pensions into a lump sum regardless of their other pension savings, subject to a maximum of two such commutations in a lifetime. Draft legislation was published for consultation on 6 December 2011 and the final legislation will take effect from 6 April 2012.

Unfunded workplace pension arrangements
As announced on 14 October 2010, in the summary of responses to the discussion document on restricting pension tax relief, the government is ready to act to prevent additional fiscal risk from changes in patterns of pension saving behaviour using unregistered pension saving arrangements, including unfunded workplace pensions. The government has since introduced legislation implementing restrictions on pensions tax relief through existing allowances and on disguised remuneration in the Finance Act 2011. The government will continue to monitor the use of unfunded pension arrangements, and remains ready to act as necessary to prevent new and extensive use of these arrangements from creating a significant fiscal risk and undermining its objective of a more affordable pension regime.

Lifetime allowance
Following changes made in the Finance Act 2011 to restrict the cost of pensions tax relief by reducing the lifetime allowance from £1.8m to £1.5m from April 2012, a regulation-making power will be made. Regulations will then be made to ensure the rules surrounding fixed protection work as intended.

Annual allowance
Following changes made in the Finance Act 2011 to restrict the cost of pensions tax relief by reducing the annual allowance from £255,000 to £50,000 for the 2011-12 tax year, technical amendments to the legislation will be made through regulations to ensure the rules surrounding scheme pays and deferred members work as intended.

Contracting out
The government will amend pensions tax legislation to remove references to tax relief on employee contracted-out contributions to defined contribution pension schemes This will align tax legislation with Department for Work and Pensions (DWP) legislation, under which contracting out through a defined contribution pension scheme will be abolished from 6 April 2012.

Contributions paid to spouses or family members
The government will legislate to ensure that arrangements where an employer pays a pension contribution into a registered pension scheme for an employee’s spouse or family member, as part of their employee’s flexible remuneration package, cannot be used to obtain tax and national insurance contributions advantages for the employee or the employer.

Bridging pensions
The government will legislate to align the tax rules on the payment of bridging pensions with forthcoming DWP changes to the state pension age.

Qualifying recognised overseas pension schemes (QROPS)
The government will introduce changes in primary legislation to strengthen reporting requirements and powers of exclusion relating to QROPS. It supports the changes in secondary legislation published for consultation on 6 December 2011. The government also announced that where the country or territory in which a QROPS is established makes legislation, or otherwise creates or uses a pension scheme to provide tax advantages that are not intended to be available under the QROPS rules, the government will act so that the relevant types of pension scheme in those countries or territories will be excluded from being QROPS.