HMRC has issued a list of recent changes to the RPSM made in relation to the changes enacted in the Finance Act 2011. Points covered by the guidance include confirmation that:
- An individual using drawdown may only take a pension commencement lump sum within the standard timeframe, that is within six months before and one year after the individual became entitled to the drawdown pension.
- An individual using capped drawdown (with the maximum that may be drawn down linked to the annuity that could be bought with the member's pension pot) may continue to make pensions contributions.
- An individual using flexible drawdown (having demonstrated that he or she has guaranteed income of at least £20,000 pa) may not make contributions in the tax year in which flexible drawdown starts. Contributions made in subsequent years will be subject to the annual allowance charge in full.
- An individual with a final salary link will be considered an active member for the purposes of the flexible drawdown provisions and so would not be eligible to enter a flexible drawdown arrangement.
A member who has left pensionable service may be treated as an active member for the purposes of the annual allowance if:
- the member's benefits are subject to a final salary link;
- the deferred member receives a more favourable revaluation rate while still employed by a participating employer compared to the rate given to a deferred member who has left service;
- the member retains life cover in the same scheme as the deferred benefits;
- the member is eligible for ill health benefits from deferment if the ill health cover increases by more than revaluation linked to CPI (or the rate in the scheme rules on 14 October 2010).
- Giving up non-statutory pension increases in return for a higher starting pension will result in the increase in pension being tested against the annual allowance. Offering the exchange one year after retirement could amount to an "avoidance-inspired post-entitlement enhancement" under the Finance Act 2011.
- Where a member's benefits are reduced under a "scheme pays" facility, HMRC would expect a scheme to be able to demonstrate that the reduction applied meets the "just and reasonable" test. Dependants' benefits may not be reduced, although there may be an indirect reduction where benefits are based on a percentage of the member's pension.
- Certain contributions to provide life cover under a policy in existence before 6 April 2006 will not jeopardise a member's fixed protection.
- A member who is auto-enrolled in his employer's automatic enrolment scheme will not lose his fixed protection if he submits a valid opt-out notice within one month of his auto-enrolment date.
HMRC issued its Newsletter 49.
The Newsletter includes some explanation of a scheme administrator's responsibilities in relation to flexible drawdown. Administrators must take reasonable steps to satisfy themselves that the individual satisfies the minimum income requirement, including routinely asking for more specific detail of the income source.