The Finance Act 2007 received Royal Assent on 19th July. It makes a number of amendments to the new pensions tax regime relating to registered pension schemes. This article summarises the main changes relevant to both occupational and personal pension schemes.
Key changes include the following:
- It will now be possible to reduce an ill-health pension in payment. Previously, it was only possible to suspend the pension, not reduce it, which caused problems if the scheme rules provided for a reduction in the benefits if the member’s health improved or for a recalculation of the benefits at normal retirement date. Moreover, this change is not restricted to future reductions, but is “deemed always to have had effect”.
- Retirement lump sums, known as "pension commencement lump sums", may now be paid up to 12 months after (or up to 6 months before) the associated pension comes into payment, and may also be paid after the age of 75, where the entitlement rises before that age. This will make the retirement process much easier to administer, particularly where a member has money purchase benefits that need to be cashed in and used to purchase an annuity, or where earnings information from the last month of service is required before the exact pension can be calculated. Again, this change is deemed always to have had effect.
- In relation to deaths occurring on or after 6 April 2006, lump sum death benefits may now be paid at any time within two years from when for the scheme administrator actually became aware of the member's death (or, if earlier, when he could reasonably have known of it). Previously, the benefit had to be paid within two years even if the scheme was unaware of the death.
In addition, there are a number of other changes for pension providers to be aware of, including:
- those establishing registered pension schemes which are personal pension schemes and stakeholder schemes must be authorised by the FSA to do so;
- a review of the maximum annual withdrawal for unsecured pensions can now be more than every five years, which means it is possible to recalculate the limit to take into account investment performance part way through a five year period;
- a number of changes have been made to the requirements for alternatively secured pensions, including the introduction of a minimum level of income withdrawal; and
- the exemption from inheritance tax for settled property held for registered pension scheme purposes during a member's lifetime is extended to cover the period until the lump sum death benefit is actually paid out.
Please contact your regular CMS Cameron McKenna contact should you require further information on any of the Finance Act changes.