Preparations for the fundamental changes announced in the 2014 Budget are well under way. The main pieces of primary legislation have been introduced to Parliament and consultations, both public and behind the scenes, are continuing. Trustees and employers should be considering how the changes might affect their schemes and what, if any, modifications they may wish to make. Although the largest changes are to defined contribution arrangements, trustees and employers of defined benefit schemes should also be considering whether to relax their transfer rules to allow members to access the new flexibilities more easily.
Over the next few weeks and months leading up to 6 April 2015 we will be issuing focused guidance for employers and trustees. Today, I am just going to highlight a few recent developments.
The Taxation of Pensions Bill
In August we reported on the publication of the draft Taxation of Pensions Bill setting out some of the detail on how the new pension flexibilities will work in practice. The Taxation of Pensions Bill itself has now been presented to Parliament. It covers substantially the same ground as the draft and also includes the changes to taxation of lump sum death benefits announced earlier this month.
New tax rules on pension funds at death
On 29 September the Chancellor announced that, from 6 April 2015, individuals will be able to pass on unused defined contribution pension funds (including both funds designated within a drawdown arrangement and uncrystallised funds) to any nominated beneficiary. The outline of this is in the Taxation of Pensions Bill.
According to the announcement, if the member dies before age 75 then the amount remaining will be tax-free. The beneficiary can choose to withdraw the money as a lump sum or as drawdown income. If the member dies aged 75 or over then the nominated beneficiary can access the remaining funds flexibly at their marginal rate of income tax or receive the entire amount as a lump sum subject to tax at 45 per cent. Once the full details are known, schemes may need to consider whether their procedures for nomination of beneficiaries need revising, the extent to which beneficiaries will be allowed to access funds flexibly and whether there may be any inheritance tax consequences.
The Guidance Guarantee
A key plank of the new flexibility is that all individuals with defined contribution pension savings are to be offered free impartial guidance in the run-up to their retirement. The guidance will be delivered by bodies designated by HM Treasury and be subject to a standards regime operated by the Financial Conduct Authority (FCA). The FCA will set rules for how and when scheme trustees or providers must signpost the availability of guidance to members.
The provisions establishing the Guidance Guarantee can be found in the Pension Schemes Bill. Amendments to the Bill were made last week confirming that the first designated bodies charged with delivering the Guidance Guarantee are to be the Pensions Advisory Service (TPAS) and the Citizens Advice Bureaux (CAB). TPAS will offer a telephone service and CAB will give face-to-face guidance. There is also to be an online service but the provider of this is yet to be confirmed.
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