29th January, 2016
To make simple or simpler, as:
- To reduce in complexity or extent.
- To reduce to fundamental parts.
- To make easier to understand.
On December 8th HMRC published the revised tax manual to reflect the changes made by the Finance Act 2015 and arising from consultation on the manual itself. The very next day, before most people had had the chance to turn over page one of the revised manual, the latest draft of the 2016 Finance Bill was issued.
Interestingly the draft Bill reiterates the Government’s aim to simplify tax legislation including a clause to make the Office of Tax Simplification permanent.
The draft clauses of the 2016 Bill are open to public consultation until 3 February. It is fair to say that pensions are not at the forefront of this Bill but there are a few points that we should all be aware of.
As we know the Life Time Allowance is being slashed again to £1 million from 6 April 2016. The draft Bill codifies this reduction and details the (latest lot of) transitional protection available. When the Life Time Allowance was first announced in the 2004 Budget the Government estimated that about 5,000 people would be affected at A-day (6 April 2006) and that 1,000 people would be affected each year. This as challenged by many commentators and the National Audit Office was commissioned to carry out an investigation which concluded that around 10,000 people would be affected at A-day, though in fairness it did note that “Great uncertainty” attached to the estimate. So in the context of the UK working population, hardly anybody.
The continual erosion of the allowance in recent years now means that there is a real possibility that long service members of defined benefit schemes on relatively modest income could be hit. Those lucky enough to still have a defined benefit scheme open to accrual need to be increasingly vigilant and trustees should be ensuring that their membership are aware.
The Bill also covers the simplification of the technical test applied to check whether an excessive amount has been set aside to provide a dependant’s scheme pension and removes any charge to inheritance tax (backdated to 2011) on funds designated for drawdown but not drawn before death.
As announced in the Autumn statement, the Bill now removes the legislation that currently permits bridging pensions [an additional pension paid prior to State Pension Age normally linked to the Basic State Pension]. Consultation from HMRC is imminent on new legislation to clarify how bridging pensions will work post April 2016 and the introduction of the Single Tier State Pension.
Potentially more interesting are the pensions points that do not appear in the draft Bill but are expected in the near future and on which the supporting papers issued with the draft Bill shed some light:
- The outcome of the consultation on the future of the tax relief for pensions will be published as part of this year’s Budget on 16 March.
- The legislation to introduce a secondary annuity market will be included in the 2017 Finance Bill.
Trustees should be aware of legislative and regulatory developments and how they impact on their scheme(s). If trustees are concerned or unsure about whether or how their scheme is affected they should take appropriate advice as early as possible. Make sure you are driving the agenda.