Finance Act 2016

The Finance Bill, whose passage through Parliament had been delayed over the summer recess because of the EU Referendum, has today received Royal Assent.

As previously reported, what is now the Finance Act 2016 contains the following changes to pension tax legislation (the first two having already been active since 6 April by way of a Parliamentary resolution):

• The reduction in the Standard Lifetime Allowance (SLTA) from £1.25m to £1m on 6 April 2016, with increases in line with the CPI for the tax year 2018/19 onwards
• The introduction of Fixed and Individual Protection 2016
• A significant overhaul to the maximum pension that can be paid as dependants’ scheme pension, where an individual who started to draw a DB scheme pension after 5 April 2006 dies at or after age 75; and
• The removal of existing tax legislation on allowable shapes of bridge pensions framed around state benefits (so potentially inappropriate following the introduction of the single-tier state pension from April 2016) – it will be replaced by new legislation to be set out in regulations not yet released

Alongside the major provisions above, there is a whole range of fine detail, all (except the first three) coming into force on 16 September – the day after Royal Assent:

• Certain adjustments to ensure that on a member’s death, the test as to how much LTA is used up reflects the SLTA in force at the time of death rather than at the time of the benefit crystallisation event
• Changes awaited for some time to ensure that individuals who have primary or enhanced protection with no lump sum protection (or primary protection with a lump sum protection on the protection certificate) can receive the pension commencement lump sum in line with the policy intent
• Changes to inheritance tax legislation to ensure that an IHT charge will not arise when a member designates funds for drawdown but does not draw all of them before death – this will be backdated to apply to deaths on or after 6 April 2011
• Re-alignment of the tax treatment of serious ill-health lump sums with lump sum death benefits, so that they can be paid tax-free when someone aged under 75 has less than a year to live but has already accessed their pension
• Easing the conditions for serious ill-health lump sums. Up to now such a lump sum could not be given from an arrangement where an individual has already accessed any benefit.  The Act removes the block in relation to remaining uncrystallised funds in the arrangement, but not from crystallised funds of any kind, such as drawdown funds
• Making serious ill-health lump sums taxable at an individual’s marginal rate when paid in respect of individuals aged 75 and over
• Permitting dependants’ flexi-access drawdown accounts to be converted to nominees’ accounts when they turn age 23 so that they do not have to take their funds as a lump sum taxed at 45%
• Removal of the rule on paying a charity lump sum death benefit out of pension and flexi-access drawdown funds where the member dies under the age of 75 because the equivalent tax-free payment may be made as another type of lump sum death benefit
• Enabling “scheme pension” that derived from money purchase arrangements to be cashed out as part of a trivial commutation lump sum (this has been an option only for DB benefits to date)
• Enabling the full amount of a dependant’s benefit in a cash balance arrangement to be paid as an authorised payment even where the scheme must top up the remaining funds on the member’s death to meet the entitlement
• The removal of what the Government says is unnecessary legislation relating to charity lump sum death benefits

Comment

This long but now completed shopping list (at least at the primary legislation level) demonstrates once more the complexity of the pension tax legislation that has been with us for over a decade and its consequential need for care and maintenance.

The big story of course is the SLTA reduction along with the two new protections.  Hopefully there will be no further big ticket changes to the pension tax regime, but we will need to get to the other side of the Autumn Statement first.

Pensions Dashboard to be launched in 2017

The Economic Secretary to the Treasury, Simon Kirby, has announced that a prototype of the Pensions Dashboard will be ready by March 2017.

In a speech, Simon Kirby said that technology, like mobile phone apps, has made day to day banking easier than it’s ever been and it is time for pensions to catch up.  He hopes that the dashboard will unlock a huge amount of pension information.

Eleven pension providers, alongside the ABI who will manage the project, have agreed to build the dashboard.  The Government hopes to have the final product in place for consumers by 2019.

Comment

This seems to take forward the work of the alpha project working group (see Pensions Bulletin 2016/22) which in June reported that it was aiming to deliver a beta version of the dashboard in 2017.

Some significant challenges remain such as encouraging other pension providers, apart from those already announced, to get on-board the initiative.  Small schemes and closed schemes may baulk at any development costs needed to join the dashboard and so far the initiative seems to be driven primarily by DC providers.  Integrating DB benefits into the dashboard may well be pushed back to a later date.

TPAS launches a “trace a lost pension” tool

Over the course of a working lifetime individuals often lose track of some of their pension entitlements.  The Pension Advisory Service is now offering a solution by launching a new online tool which it says will help people find pensions they have lost.

Comment

This new tool works through a guided set of questions and, when relevant, links to the DWP’s recently launched online pension tracing service (see Pensions Bulletin 2016/19).  The tool is a great idea.  Pension managers and administrators may wish to point their members towards it if asked for help in locating old pension entitlements.

EIOPA finalises its “Good Practice” principles for communicating occupational pension schemes

The European Insurance and Occupational Pensions Authority (EIOPA) has published a report entitled “Good Practices on Communication Tools and Channels for communicating to occupational pension scheme members“.

As expected, the report contains a number of suggestions regarding communicating with members of occupational pension schemes operated by Institutions for Occupational Retirement Provision (IORPs) and insurance undertakings.  These are based on the seven “Good Practices” set out in EIOPA’s consultation last December (see Pensions Bulletin 2015/54).

EIOPA states that the good practices depict existing rules and market practices in one or more member states that have particular merits in improving the communication tools and channels to scheme members.  As before, they are neither binding on any party nor subject to the “comply or explain” principle and are not intended to be exhaustive nor universal.

Autumn Statement date set

The Autumn Statement will be on 23 November.  Separately, HM Treasury has set out the mechanism through which representations may be made – the deadline for which is 7 October 2016.

This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law.  For further help, please contact David Everett at our London office or the partner who normally advises you.