In recognition of the global changes that are affecting how
societies manage the funding of financial provision in old age, a
range of legislative changes have been proposed for Jersey's
tax rules for pension schemes.
Following a period of consultation, a significant proportion of
the anticipated reforms (contained in amendments to Jersey's
existing income tax legislation) are due to be lodged with the
States of Jersey this month.
The States' original consultation white paper was issued in
2013. More recently the States' response to that consultation
was published, identifying changes to the initial proposals, which
have been made after taking account of industry feedback.
The UK's new laissez-faire approach, enabling pensioners
free access to their pension pots, has been noted but not yet
embraced. The Jersey proposals would retain the existing 30% limit
on tax-free lump sum withdrawals. However, pensioners would be
given greater flexibility in relation to the number of tranches by
which that 30% lump sum entitlement may be drawn.
In a related move, there would no longer be a prohibition on a
pension saver being able to enter into a drawdown contract
(attractive for those not wanting a pension secured by way of
annuity) if they have already received a tax-free lump sum from
their "traditional" occupational pension scheme.
To address the risk of tax revenue loss due to pension
overfunding, the 2013 pension consultation paper had proposed a
maximum cap on tax-free lump sums (a cap of £540,000 or
£1.8 million depending on the circumstance in which the lump
sum was to be taken), with amounts drawn over that threshold being
subject to tax. However, these changes have been dropped from the
latest proposals. In another move affecting higher earners, the
rules governing the limits on tax relief on pension contributions
for those with incomes over £150,000 are to be amended
following recognition that they are not operating as intended.
Industry feedback on the more recent consultation paper showed
strong support for removal of the prohibition on the ability to
transfer part only of a person's pension pot from one
Comptroller-approved scheme to another. In response, allowance for
a limited form of partial transfer has been made, subject to
express consent of the Comptroller. Potential further relaxation of
that limitation in the future is to be considered.
It is still proposed to relax the restrictions on transfers from
Comptroller-approved schemes to foreign schemes, so as to enable
movement to "equivalent" non- Jersey schemes, but the 10%
tax that it was suggested might be levied on such transfers is not
now being sought.
The States' latest consultation response confirms that no
legislative changes will be proposed in 2014 to either increase the
minimum age to access pensions (currently 50), or to remove the
upper age limit (of 75) at which a person is required to start
drawing their pension. It also made it expressly clear that the
proposed changes would not affect international schemes established
solely for non-residents (e.g. Article 131A and 131C schemes).
In line with the original 2013 white paper, the upper limit on
an individual's annual pension contributions (i.e. the lower of
(i) £50,000 and (ii) total net related earnings) would be
removed. The maximum cap on tax relief for contributions would
remain, and so tax charged on contributions over and above those
The requirement that a person of retirement age retires before
drawing a pension would no longer apply, and the prescriptive rules
restricting the amount of pension income a scheme can pay will be
replaced by what is hoped will be a far simpler mechanism,
determined by the scheme rules for defined benefit schemes, and the
size of the pension pot for defined contribution schemes.
A move to self-certification is also proposed, which will remove
the need to seek express Comptroller approval, and instead place
the onus on the scheme administrator to conclude that its scheme
complies with the requirements of approval and is therefore
eligible for tax concessions.
To prevent abuse of the greater flexibility provided by the
revised pensions regime, the legislative amendments would also
include a "benefit in kind" charge on contributions above
a certain threshold made by employer companies for their owner/
manager employees who have an ownership/ controlling interest in
the contributing company.
Following adoption by the States it is expected that these
amendments will be in force from the beginning of next year.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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