DLUHC consult on changing the date on which CARE benefits are revalued in the LGPS
What a difference 5 days makes
16 Feb 2023
Having been heavily trailed, it was no surprise to see DLUHC announce a consultation on changing the date on which Career Average pensions are revalued from 1 April to 6 April. The move is designed to bring the revaluation of the CARE benefits into line with the Pension Input Period (PIP) used for Annual Allowance tax calculations.
Why is the change being proposed?
The Annual Allowance calculation measures the increase in pension benefits over the PIP. If growth exceeds the Annual Allowance of £40,000 then a tax charge may be payable. The calculation of the growth allows for benefits to increase in line with a cost-of-living increase without being measured against the £40,000 limit.
The problem that has been identified is that this cost-of-living increase is different from the increase that is actually applied to CARE benefits, so a mismatch arises. In periods of fairly steady, low inflation this mismatch was shrugged off as just one of those things. However, the rapid increase in prices that occurred in 2022, resulting in a jump in CPI which is used to revalue pensions, has brought the issue to the fore.
If the changes outlined in this consultation were not applied, then the inflationary allowance allowed for in the 2022/23 Annual Allowance calculation would be 3.1% while CARE benefits would be increasing by 10.1%. This would see significantly more people breaching the Annual Allowance and paying a tax charge.
The consultation
This is a ‘blink and you’ll miss it’ consultation, lasting only 2 weeks from 10 February 2023 to 24 February 2023. The tight timescale is likely to mean that, if the changes are implemented, pension administration systems will not be updated in time for April’s increases to be applied.
In this Briefing Note we explore what the changes will mean for those individuals affected.
You can view our response to the consultation here.
If you have any questions on anything covered in this briefing note, get in touch.
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