UK: Budget 2014: Immediate Changes For Pension Schemes

Last Updated: 26 March 2014
Article by Jennifer Bell

Summary and implications

This week's Budget has brought major change to the world of pensions. The headline policy is that individuals will, from April 2015, have full flexibility in what they do with their DC pension pots, with no requirement to purchase an annuity or enter into a drawdown arrangement. As a precursor to that, relaxations are being introduced from 27 March 2014 which will allow more members to take all their benefits as lump sums and make drawdown more widely available.

Many schemes will want to offer their members access to these options as soon as possible. As well as being popular with members, it will mean far fewer low-value benefits for schemes to administer. Some schemes will have sufficiently wide provisions to allow this, others may need amending.

New rules are also being introduced immediately to close a loophole used in pension liberation arrangements as well as giving HMRC wider powers to refuse to register pension schemes. Further changes will follow in September 2014, introducing a "fit and proper person" test for scheme administrators and allowing tax relief where a pension liberation arrangement is reversed.

Trivial commutation - lump sum increases to £30,000

From 27 March 2014, the trivial commutation limit will increase from £18,000 to £30,000. This means that a member can, from age 60, take all his pension benefit as a lump sum provided that his total savings in registered pension schemes do not exceed £30,000. 

The new rule applies to all payments made on and from 27 March but the date on which the valuation of the benefits is made can be on any nominated date up to three months before the date of payment (so the £30,000 can be valued on any date from 28 December 2013).  

As things stand, there is no equivalent increase to the value of trivial lump sums which can be paid on a scheme wind up - these remain at £18,000, and no account is taken of other pension savings. Neither is there any increase from £18,000 for trivial commutation lump sum death benefits. 

Small lump sums - payments of up to £10,000 allowed

Current legislation allows lump sums of up to £2,000 to be paid as authorised payments, regardless of the value of other pension savings, in certain circumstances. The limit for all these payments will increase to £10,000 on 27 March 2014. 

This should be particularly helpful to trustees of occupational pension schemes as they can discharge their obligations to all members with benefits worth up to £10,000, leaving them with far fewer small benefits to administer or buy out. 

Also, members of personal pension arrangements can take up to three £10,000 lump sum payments (as long as each payment extinguishes all benefits under the arrangement). Currently only two payments of £2,000 are authorised.

Changes to drawdown rules

Individuals taking capped drawdown are currently restricted to taking 120 per cent of the value of an "equivalent annuity" each year. This is to be increased to 150 per cent for all drawdown pension years starting on or after 27 March 2014. This means some individuals may not be able to take advantage of this for a number of months, depending on the date on which they were first entitled to a drawdown pension.

Pensioners wishing to take flexible drawdown, and so not be subject to annual restrictions on how much they can withdraw, must satisfy a minimum income threshold (i.e. have a guaranteed minimum income from a combination of state pension, scheme pension and annuity). The minimum figure is being reduced from £20,000 to £12,000 on 27 March 2014.

Pensions liberation - tightening the net

The Budget includes a number of steps to help HMRC and the Pensions Regulator prevent pensions liberation.

From 20 March 2014 HMRC will be able to refuse to register a scheme (or decide to de-register a scheme) if it believes that it is not established or being maintained as a scheme for the provision of authorised payments. In addition, HMRC has new powers to require information from scheme administrators and others, to inspect documents and to levy fines for false information when considering an application for the registration of a scheme.

From September 2014 HMRC may refuse to register a scheme if it is of the opinion that the scheme administrator is not a "fit and proper person". Also from September 2014 there will be some tax relief when liberated sums are repaid into a registered pension scheme and former scheme administrators will remain on the hook for tax liabilities following the appointment of a new scheme administrator where there is an independent trustee.

Rules on the surrender of pensions are being changed from 20 March 2014 to close off a loophole used by pensions liberators. The surrender of benefits in favour of a dependant will only be authorised if the new benefits are to be provided in the same pension scheme and the surrender of benefit which creates a surplus payable to an employer will be treated as an unauthorised payment.

Full flexibility for DC retirement 

The Government is consulting on the plans to remove restrictions on retirement from DC schemes from 2015. This will have a major impact on benefit design and investment in DC schemes as well as a knock-on effect on DB schemes due to the proposed restrictions on transfers. We will be considering these proposals in depth over the next days and weeks and will be issuing further comment and guidance.

Please follow the links foR the consultation document on the april 2015 changes and the detail on lump sums and drawdown and pensions liberation

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Spectrum IFA Group
Clyde & Co
Wedlake Bell
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Spectrum IFA Group
Clyde & Co
Wedlake Bell
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions