Draft regulations have been published by HMRC, which would make a number of amendments to the annual allowance regime, including amendments to ensure that the changes to the regime made by the Finance Act 2011 work as intended. The changes include the reduction of the annual allowance to GBP 40,000 from the 2014/15 tax year onwards, the flexibility to carry forward unused annual allowance from previous years, and the option for members to elect for their scheme to pay part or all of any annual allowance charge. The draft amending regulations, which follow on from an initial consultation carried out in November 2012, are also designed to reduce further administrative burdens and make other improvements to the legislation. Specifically, the draft regulations would make changes including:

  • adjustments where unintended annual allowance input amounts may have arisen where transfers between schemes are deemed "underfunded". This may occur, for example, where a block transfer is made between schemes during a merger, but the transferring scheme does not have sufficient available funds fully to cover the value of current and future pensions promised by the receiving scheme even where the receiving scheme's benefits mirror the benefits that would have been provided in the transferring scheme. HMRC's initial consultation had proposed wording to address this issue, but its implementation was delayed after concerns were raised. The new provisions are intended to prevent unintended annual allowance input amounts arising;
  • protection of the existing annual allowance easement where deferred members transfer their benefits to other schemes;
  • protection of the existing annual allowance easement where deferred members transfer their benefits to other schemes;
  • where pre-2006 deferred members become active members again, only the increase in their deferred benefits in the year of re-joining is counted against the annual allowance, rather than the entire value of the deferred benefits;
  • where a deferred member receives RPI-specific increases under the rules rather than CPI increases on deferred benefits, or on indexed deferred annuities provided after a winding-up of the scheme, those increases will not count towards the annual allowance. Further changes also seek to ensure that statutory increases to deferred benefits are not tested against the annual allowance;
  • from the date the regulations come into force, in relation to "scheme pays" provisions, the removal of an unintended advantage under which a member of a DB scheme would pay a lower annual allowance charge in the year he took his benefits if he relied on the "scheme pays" provision, and giving increased access to "scheme pays" in certain situations where members may have previously been denied access;
  • ●    certain changes relating to whether refunds of excess contributions to a money purchase arrangement would count towards the annual allowance.

A consultation on the draft amending regulations ended on 27 August 2014. The draft regulations can be viewed by clicking here, a draft explanatory note can be viewed here, and the draft HMRC guidance can be viewed here.