Finance Bill 2012

Introduction

On 6 December 2011, the Government published the draft Finance Bill 2012. The Bill includes the changes to asset backed contributions1 announced in theAutumn Statement on 29 November 2011 as well as a number of other measures for occupational and personal pension schemes.

In this Alert:

• Key points
• Commutation of small pension pots
• Extension to personal pension arrangements
• Overseas transfers of pension savings
• QROPS changes

Key points

• The 2012 Budget will be delivered by 21 March 2012 and ahead of that deadline, the Government has published the Finance Bill 2012.
• Regulations will extend the ability to commute small pension pots to individuals with personal pension benefits, provided that certain conditions are met.
• The conditions for transferring pension benefits overseas to qualifying recognised overseas pension scheme (QROPS) are to be revised.

Commutation of small pension pots

Back in May 2010, the Government made a commitment in the Coalition Agreement to explore the potential to allow individuals access to part of their personal pension fund early, as part of its wider objective to encourage people to save and invest more. Although a call for evidence on early access2 was conducted, the Government has decided not to take the main proposals further. However, the Government has now decided to extend the ability to take commutation of small pots to personal pension schemes.

Members of occupational pension schemes (who are aged 60 or over) already have the option3 of accessing (or ‘commuting’) small pension pots of £2,000 or less as a lump sum. This right in relation to ‘small pots’ can be exercised in addition to the general rules on trivial commutation, under which members may take all of their pension savings as a lump sum if their aggregate pension savings are less than £18,000.

Extension to personal pension arrangements

Regulations will extend the ability to access small pension pots to members of personal pension arrangements, allowing individuals aged 60 or over to commute savings of up to £2,000. To prevent the abuse of this easement, an individual will only be able to take two such lump payments in their lifetime. However, it will be possible to make these payments regardless of the value of the individual’s total pension savings and in addition to any trivial commutation lump sum payments or small pots paid from occupational pension schemes.

The regulations are intended to come into effect from 6 April 2012.

Overseas transfers of pension savings

A QROPS is a registered pension scheme established outside the UK that is broadly similar to a UK registered pension scheme.

The QROPS regime was introduced in April 2006. It allows individuals to transfer their pension savings in a UK registered pension scheme, free of UK tax, to an overseas pension arrangement that meets the conditions to be a QROPS (subject to the Lifetime Allowance). The QROPS regime has been kept under review by HMRC and, due to concerns about potential abuse of the system, the Government has published draft regulations which will amend the system for transfers of pension savings to a QROPS.

QROPS changes

Broadly, the draft regulations revise the conditions a scheme has to meet to be a QROPS and strengthen the information and reporting requirements.4 The changes include:

• an acknowledgement by the individual (to be completed before the transfer is made) that tax charges may apply;
• revised time limits within which trustees of registered pension schemes must report transfers to QROPS;
• additional powers for HMRC to request information from a scheme manager of a QROPS; and
• new time limits for the reporting of payments by a QROPS to HMRC.

Consultation on the draft regulations closes on 31 January 2012.

1 Please see our Alert: “Autumn Statement 2011” dated 1 December 2011
2 HM Treasury: Call for evidence on early access to pension saving dated 13 December 2010
3 Introduced with effect from 1 December 2009 – please see our Alert: “Finance Act 2009 – This time it’s personal” dated 18 May 2009
4 Alongside the draft legislation, HMRC has published a Tax Information and Impact Note, draft forms and notes for completion and a statement on the purpose of the QROPS regime