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On 9 April 2014 the FCA published guidance for firms following the changes to pensions legislation announced in the 2014 Budget.  (For details please see our Alerts: Budget 2014: Never a quiet year for pensions and Budget changes for pensions: What’s happening on 27 March 2014?)

In light of the Budget announcements, firms will need to make changes to their operational processes and procedures.  They will also need to consider how to treat those customers who are making a decision about their retirement income in the coming year.

The guidance aims to provide clarity on the FCA’s expectations of firms during the interim between the Budget announcements and the date the measures are due to come into force.  It is relevant to:

It applies where customers are in the cancellation period for a retirement income product, have received a wake-up pack from their pension provider, or are coming up to retirement.  It does not apply to customers who have purchased an annuity or drawdown product before Budget 2014 where the cancellation period has expired.

On 9 April HMT announced that people who have recently taken a tax-free lump sum from their DC pension will be given 18 months rather than 6 months to decide what they wish to do with the rest of their retirement savings.  This follows an announcement on 27 March 2014 that confirmed that the government would take action to ensure that people do not lose their right to a tax-free lump sum if they would rather use the new flexibility this year or next, instead of buying a lifetime annuity.

Under current tax rules, once a tax-free lump sum has been taken, individuals have six months before they are required to make a decision regarding their pension, either by buying an annuity or entering into capped drawdown.  If this is not done, the lump sum is then taxed at 55%.  This extra time aims to allow people to make the right decision for their pension.

Alongside this, HMRC published more information to help people who want to use the new flexibility.  This information is for people who have:

Further detail is provided on whether or not the unravelling of actions that were taken shortly before the Budget changes were announced will give rise to a tax charge.  This information relates to how the tax rules will apply.  HMRC notes that it is summarising its position and that the actual options available to an individual will depend on what their pension scheme decides to allow.

On 9 April 2014, HMRC issued Newsletter 61.  It includes information on:

With effect from 6 April 2014 the LTA is £1.25 million.  If an individual’s pension savings are worth more than this when they take their benefits they will have to pay the LTA charge on the excess, unless they have some form of LTA protection.

On 7 April 2014, HMRC published guidance on the different types of protection which are/were available.

The AA for the 2011 to 12 tax year was to be £255,000.  However, on 14 October 2010 it was announced that the AA for that tax year would reduce to £50,000.  This meant that an individual might have already saved more than £50,000 when the change was announced.  For this reason, the AA tax charge will not apply to pension savings of more than £50,000 subject to a maximum of £255,000 as long as those savings were built up before 14 October 2010 for pension input periods (the period used to assess annual increases in the value of members’ benefits for the purpose of testing against the AA) ending in 2011 to 2012.

HMRC has published new guidance on split pension input periods for individuals who are affected by this reduction in the AA.

An individual will have a split pension input period if both of the following statements apply:

The government’s Equitable Life Payment Scheme has now paid out £901 million.

Since January 1 2014, the scheme has issued payments to a further 143,372 policy holders.  This equates to almost 1,600 policy holders being paid every week since January and means that over 860,000 out of 1 million eligible policyholders have now received the payments due to them.

On 10 April 2014, Michael Fallon, the Minister of State, Department for Business, Innovation and Skills announced that the Government has agreed, in principle, to participate in the private sector-led consortium created to avoid the immediate insolvency of UK Coal.  This participation is conditional on negotiation of final terms that provide adequate protection to taxpayers, and the Government securing assurance that all parties (including trade unions) are committed to successful delivery of the closure plan.

The PPF issued a statement the same day explaining that the Government’s announcement does not create additional liabilities for the PPF.  The PPF expects to make a recovery from this arrangement such that it would be no worse off than if UK Coal had passed into immediate liquidation last July.

On 10 April 2014, TPR published the findings of research examining how DB schemes of different sizes are impacted by administration and other running costs.

TPR has also developed a charges checklist and a web tool to help trustees assess how the costs of their scheme compare with those of a typical scheme of a similar size.

Key findings of the research include:

TPR is publishing this research to encourage trustees and employers to understand what they are paying and then ascertain whether or not they are receiving value for money from their providers and advisers.  It is also aiming to start a discussion with the pension industry to inform its future approach to value for money in DB schemes.

TPR has updated its DC regulatory guidance to take account of the changes to the disclosure regime which took effect on 6 April 2014 (please see our Alert) and the Government’s consultation on proposals to allow full flexibility for DC members in accessing their pension savings from April 2015.  In respect of the latter it states that “trustees should ensure that members are made aware of the full range of options available to them, including commutation for small pots and members deferring their pension”.