On 27 March 2014, and of interest to all employers and trustees, is the publication of the Finance Bill 2014. Reflecting the announcements in the 2014 Budget as reported in our March 2014 update, the Bill sets out detailed provisions regarding the changes affecting occupational and personal pensions.
The following changes are set out in the Finance Bill 2014:
- the maximum annual withdrawal cap for members who have opted for capped drawdown will be increased to 150 per cent from 27 March 2014. The minimum income requirement for flexible drawdown will decrease from £20,000 to £12,000;
- the amount of the lump sum that can be paid under the “all schemes” trivial commutation regime is amended to allow trustees to commute a member's benefits provided his total benefits in all registered pension schemes do not exceed £30,000. The small pot commutation limit increases from £2,000 to £10,000; and
- HMRC will have wider powers to combat pension liberation, including additional grounds on which registration can be refused, or schemes de-registered.
The Bill also includes provisions relating to individual protection 2014, previously published in draft in December 2013.
Change to tax-free lump sum rules
In addition, on 9 April 2014, HM Treasury and HMRC announced details of a planned change to the rules relating to pension commencement lump sums (PCSLs), which will apply to individuals who received a PCLS on or before 27 March 2014. The guidance applies to members who have received a PCLS on or before 27 March 2014 and have either cancelled an associated annuity contract or have not yet decided how to access the rest of their pension savings.
Essentially, current provisions in the Finance Act 2004 permitting an individual to draw a PCLS up to six months before he becomes entitled to receive an associated annuity or pension, are amended to increase this six-month period to 18 months. Individuals who benefit from this change will be able to take advantage of either the interim flexibilities that came into effect on 27 March 2014, or wait until restrictions on the access to DC pensions are removed entirely from April 2015.
HMRC has published guidance on the Budget 2014 changes, available here.
The Financial Conduct Authority has published guidance on the Budget 2014 changes, available here.