Latest regulations bring clarity to new pensions tax regime and means trustees can ‘uncross their fingers’
Pensions & benefits DB pensions Governance Pensions tax
Two sets of regulations have been published in two days on the new pensions tax allowances for tax-free lump sums. LCP’s tax expert, Alasdair Mayes, believes that this will put the new regime on a firmer footing and allow trustees to have confidence in the sums they are paying out to members. The new regulations mean that retirements and transfers that have been on hold since April can now be processed.
The abolition of the Lifetime Allowance was rushed through in April, ahead of the general election. As a key pillar of the pensions tax regime, removing the Lifetime Allowance from the statute book and putting in place the new mechanisms that were then needed to maintain the ability to take tax-free lump sums on retirement and death was a major task. What should have taken three years was pushed through in one.
Alasdair Mayes, Partner at LCP, commented: “Due to the speed that these changes were pushed through it’s not surprising that there were lots of mistakes. Finding the issues and resolving them has been a lot of work for HMRC and the industry. In the meantime, retirements for some members have had to be put on hold to ensure their ability to take tax-free cash was not restricted by glitches in the legislation.
“Trustees that crossed their fingers and paid lump sums that were technically “unauthorised” under the flawed legislation on the promise that HMRC would fix the issues can now uncross them.
“The key lesson from all this is that the pensions system requires stability. This was legislation to abolish the lifetime allowance and yet it was still hard to get right. Any government who wants to make changes to pensions tax need to make sure any changes are considered and planned, with plenty of time for implementation.”
You can read more analysis about potential pension tax changes in LCP’s latest On Point paper Pensions, tax and the Budget.
