The 2007 Pre-Budget Report was published on 9 October. The main pensions measures which were announced are: 

  • bringing forward to 6 April 2009 (instead of 2012) the first stage in the process of making the state second pension (S2P) flat-rate by 2030 (earnings above a new Upper Accrual Point will not be used to calculate S2P entitlements) and at the same time phasing out defined benefit contracting-out
  • closing a loophole which allowed tax relieved pension savings to be "diverted" into inheritance instead of being used to buy an annuity at age 75; such surrenders, if made on or after 10 October 2007 in relation to deaths on or after 6 April 2008, will be subject to unauthorised payments charges as well as inheritance tax (IHT), where applicable:

− an unauthorised payments charge when a member surrenders rights to payments under a lifetime or dependant's annuity

− an unauthorised payments charge when a member dies and a "connected person" becomes entitled to increase his or her rights under the scheme as a result of that death (essentially this prevents members of "family" SIPPS or SSASs from receiving benefit augmentations as a result of the death of a family member); however, this will not apply on the reallocation of rights after death where the scheme has at least 20 members and the increases are applied at the same rate for each member; and

− an IHT charge where a member dies aged 75+ and there is an increase in pension rights attributable to that death or the payment of an unauthorised lump sum

  • closing a corporation tax loophole whereby some employers had avoided the spreading of tax relief on large contributions by arranging for them to be paid by a new participating employer, which then received full tax relief in the year of payment; the usual rules requiring spreading of the relief over four years will now apply in these circumstances to payments made on or after 10 October 2007 under binding obligations entered into on or after 9 October 2007
  • relaxing the treatment of pension increases in excess of the “permitted margin” (calculated according to the somewhat complicated formula set out in the Finance Act 2004); the amount of the excess counts as a benefit crystallisation event (BCE3), which has to be tested against the member’s lifetime allowance; the changes, to be backdated to 6 April 2006, include:

− where a group of at least 20 pensioners receives the same increase this will not trigger a BCE3

− a new "threshold annual rate" is introduced which allows increases (in most cases) of 5%

− indexation of earlier BCEs is to be introduced (from 10 October 2007)

  • simplifying the rules for protecting pre-April 2006 lump sums (backdated to 6 April 2006) where additional amounts are put in the scheme, or there is additional accrual after 6 April 2006, so that schemes will no longer have to calculate whether "relevant benefit accrual" has occurred
  • giving UK tax-relieved savings held in Qualifying Registered Overseas Pension Schemes (QROPS) the same IHT protection as funds held in UK registered schemes (backdated to 6 April 2006).