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Autumn Statement 2016: Pensions and savings

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  • Publish date: 26 October 2016
  • Archived on: 01 January 2019

ICAEW Tax Faculty provides analysis of the announcements relating to the taxation of savings and pensions in the 2016 Autumn Statement.

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Money purchase pensions: annual allowance

Where an individual has accessed their defined contribution pension pot by either taking lump sums or putting it into an income drawdown fund, and started to take income from it, the maximum pension contribution qualifying for income tax relief is £10,000 per annum for 2016/17. This will be reduced to £4,000 per annum from April 2017.

There is a consultation on the detail, Reducing the money purchase annual allowance, inviting comments by 15 February 2017.

Foreign pensions

The Chancellor announced that the tax treatment of foreign pensions will be more closely aligned with the tax treatment of UK pensions for UK residents. This appears to signal the end of the 10% reduction for foreign pensions given by s617, Income Tax (Earnings and Pensions) Act 2003. However, it is not clear how any changes will impact on those double tax treaties that give the taxing right to the country of the pension’s origin.

Other changes to foreign pensions include:

  • the taxing rights over recently emigrated lump sum payments from funds that have had the benefit of UK tax relief will be extended from five to 10 years;
  • the tax treatment of funds transferred between registered pension schemes will be aligned;
  • the eligibility criteria for qualifying recognised overseas pension schemes (QROPS) will be tightened; and
  • specialist pension schemes for those employed abroad will be closed to new savings.

Pension scams

There will be a consultation on options to tackle pension scams, including banning cold calling in relation to pensions, giving firms greater powers to block suspicious transfers and making it harder for scammers to abuse small self-administered schemes.


Internal analysis by HMRC indicates that 98% of adults pay no savings tax (although there is no indication as to how many of the 98% actually have savings income); ISAs, the 0% savings rate band and now the personal savings allowance contribute to this statistic.

Government will continue to support savings:

  • the £5,000 0% savings rate band will continue;
  • the ISA limit (currently £15,240) will increase from April 2017 to £20,000;
  • the Junior ISA limit will increase to £4,128, currently £4,080.

NS&I Investment Bond

There will be a new three-year savings bond offered by National Savings & Investment. The indicative rate is 2.2% but this may be adjusted to reflect market conditions when the product is launched. The bond will be open to those aged 16 and over, subject to a minimum investment limit of £100 and a maximum investment limit of £3,000. The product will be available for 12 months from spring 2017.

Life insurance policies

In Lobler v HMRC [2015] UKUT 152 (TCC), Mr Lobler ticked the wrong box when withdrawing some cash from a life policy which resulted in a significant tax liability. When he encashed the rest of the policy it had made a loss but the way the legislation operated gave him a 700% tax bill. The problem was caused by Mr Lobler choosing to do a part encashment across all his policies when he should have opted for a full encashment of some of them to raise the same amount. The Upper Tribunal allowed rectification and Mr Lobler was taxed as if he had surrendered some policies in full.

Following this high profile case, HMRC consulted on how similar situations could be avoided in future (see our comments in ICAEW REP 106/16) and the solution will be to allow taxpayers in this situation to apply to HMRC to have the charge recalculated on a just and reasonable basis. The change will take effect from 6 April 2017.

This seems to be a pragmatic and reasonable solution that will not cause wholesale change to the legislation surrounding the taxation of these policies.

Personal portfolio bonds

A personal portfolio bond (PBP) is defined as a policy of life insurance, contract for a life annuity or capital redemption policy (in practice most PPBs will be single premium investment bonds) that meets certain conditions as regards the investments held. Following a consultation in the summer of 2016 legislation will be introduced giving a power to amend the regulations governing the list of assets included within the permitted investments.

Offshore funds

Currently UK taxpayers pay income tax on the offshore reporting fund’s reportable income and CGT on any gain on disposal of the fund. At present performance fees linked to the increase in value in the fund can be deducted from the reportable income but from April 2017 they will have to be deducted from the capital value. This will bring the treatment of offshore bonds in line with onshore bonds. Given the disparity in income tax and CGT rates it will be a revenue raiser.