Three months on from the surprise Budget announcement, I thought it would be helpful to do a brief round-up of where we are.
The headline announcement was of course that from April 2015 individuals with defined contribution pension savings will no longer be required to purchase an annuity or enter income drawdown. They will be allowed to take all or any of their benefits as a cash lump sum (subject to the payment of income tax). It had been suggested that schemes would be required to allow this, effectively turning DC schemes into instant-access savings accounts and creating all sorts of administrative and legal challenges. It appears that the Government may have stepped back from this position. The briefing notes accompanying the Queen's Speech on 4 June state that the proposed Pensions Tax Bill will:
"...allow individuals aged 55 or over with defined contribution pension savings to withdraw these savings as they wish, subject to their marginal rate of income tax and scheme rules."
This suggests that decisions on the benefits and level of flexibility to be offered to members will remain with the scheme. In the event that members seek more flexibility than the Scheme rules permit, they will retain their statutory rights to transfer their benefits to another registered pension arrangement and so will still be able to gain access to their pensions savings by transferring out to an arrangement which offers the flexibility they require.
The statement also implies that the Government has abandoned the Budget proposal that minimum pension age should rise from 55 in line with increases in state retirement age. This would have created some complex issues in relation to preservation. It appears that it may have been put into the "too difficult box" for the time being.
The Finance Bill 2014 was published earlier this month. It contains the changes which became effective from 27 March 2014, including an increase in the trivial commutation limit to £30,000 and relaxations in the income drawdown requirements. It is expected to receive Royal Assent in July.
One final development: The Pension Schemes Bill published last week includes a provision allowing regulations to be made restricting transfers from public sector schemes. Regulations will be allowed to prevent members of defined benefit public sector schemes (this definition will include the new CARE schemes) from transferring to a non-defined benefit scheme. This is to prevent a sudden outflow of members from the (largely unfunded) public sector schemes into DC arrangements in April 2015. The Government is still considering what, if any restrictions, should apply to private sector defined benefit schemes.
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.
