There are various pension changes being made by the Finance Bill 2017 – some of which are currently “in the wash” given the general election now due on 8 June 2017 so we do not know for sure if they will make it into legislation before Parliament is dissolved on 3 May 2017.
The key changes from 6 April 2017 are:
- Reduction to annual allowance – this has not yet become law. If a member accesses their DC pension savings in any DC pension arrangement flexibly (for example other than through the traditional method of purchasing an annuity and taking a 25% cash lump sum), then the member’s annual allowance will reduce to £4,000 for any further contributions made by or for that member (including employer and the Government contributions) to any DC pension arrangement. In these circumstances, the member should notify their pension administrator(s ) that the member may have a reduced annual allowance.
- Employer provided financial advice – this has not yet become law. An employer may provide a member with some free information or advice in relation to the member’s pension arrangements or the use of the member’s pension funds up to the value of £500, but this will be for one occasion only. This is available once the member is within five years of age 55 or earlier if the member satisfies the statutory definition of incapacity for this. No income tax or national insurance contributions are payable on this advice.
- Member financial advice – this has already become law. A member can, at any age, use £500 of his or her pension defined contributions saving to pay for advice the member might want. The advice must be on pensions or for general financial and tax issues which are relevant to the member’s overall retirement planning (including the implementation of any such advice). The member can do this at any age up to three times in his or her lifetime but only once in a tax year. The financial advice must be provided by a regulated adviser but it can be used for automated financial services advice and payment is made directly to the member’s advisor. However the rules of any specific pension arrangement will probably need to be altered to allow for such a payment to be made as an authorised payment before any member could take advantage of this new facility.
Overseas pension transfers – some of this has already become law
As a surprise move, but aiming to be in line with the government’s objective of promoting fairness in the tax system, transfers to qualifying recognised overseas pension schemes (QROPS), requested on or after 9 March 2017 are taxable at the rate of 25% unless, from the point of transfer, both the individual and the pension savings are in the same country, both are within the European Economic Area (EEA) or the QROPS is provided by the individual’s employer.
Strict measures have been put in place to ensure compliance as both the scheme administrator of the registered pension scheme making the transfer and the scheme manager of the QROPS are jointly and severally liable to the new 25% tax charge. Where there is a tax charge, they are required to deduct the tax charge and pay it to HMRC.
Advisers must now take this new tax charge into account if they have clients who want to make an overseas pension transfer.
QROPS providers had to submit a revised undertaking to HMRC by 13 April 2017 otherwise the scheme will stop being a QROPS from 14 April and HMRC’s latest overseas pensions: recognised overseas pension scheme notification list as at 18 April 2017 reflected these new requirements.
The changes also widen the scope of UK taxing provisions. Following a transfer to a QROPS on or after 6 April 2017, the extended taxing provisions on payments out of QROPS apply on and after 6 April 2017 to payments out of those transferred funds in the five tax years following the transfer.
These changes are not meant to impact on overseas transfers from pension schemes that have had UK tax relief that are made when people leave the UK and take their pension savings with them and settle in their new country of residence. However it can be difficult in practice to achieve this because of restrictions which other countries have on pension transfers. Equally the changes do not apply to transfer of pension savings that have already been made to QROPS.
The key legislation for these changes is the Finance Bill 2017, although some changes to the QROPS regulations have already become law. HMRC has also provided extensive guidance setting out how the new tax charge will work and the new obligations.
Parliamentary timetable update
Given all this, it appears the Government is aiming to push the Finance Bill quickly through Parliament:
The Finance Bill 2017 will complete the Commons Committee stage, the Report stage and the third Commons reading on 25 April 2017, and is expected to receive Royal Assent before Parliament is dissolved on 3 May. The Bill, which had its second Commons reading on 18 April 2017, is being fast-tracked through the legislative process in light of the 8 June 2017 general election.
The accelerated timetable for the Bill was presented by Rt Hon David Lidington MP, Leader of the House, on 20 April 2017. No major amendments to the Finance Bill 2017 are expected to be tabled. There is also currently no indication of any part of the Bill being stripped out before Royal Assent and reintroduced at a later stage.
The fact that Royal Assent will be over two months earlier than is usual for Finance Bills will not affect those measures with a start date specified in the Bill. However, it will bring forward the commencement of those measures that come into effect on Royal Assent and may do the same for those that will be brought into effect by Treasury order after Royal Assent.
Pensions Law Update - April 2017
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