Insight
Pensions: what's new this week - October 14, 2024
Abolition of Lifetime Allowance: Further regulations
Two sets of regulations have been laid before Parliament making technical changes in relation to the abolition of the lifetime allowance to ensure that the new framework operates as intended. Both sets of regulations are due to come into effect on November 18, 2024 and will have effect for the tax year 2024/25 and subsequent tax years.
The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 2) Regulations 2024 (the No. 2 regulations) make a number of changes, primarily in relation to specific protections and for individuals who plan to transfer their pension savings to a qualifying recognised overseas pension scheme (QROPS). They also extend certain information requirements – for example requiring the provision of information, where a transitional tax-free amount certificate has been issued, to the scheme administrators of any other schemes relevant to the member.
The draft Pensions (Abolition of Lifetime Allowance Charge etc) (No. 3) Regulations 2024 (the No. 3 regulations) are subject to a separate Parliamentary approval process. These regulations include amendments relating to the definition of the ‘applicable amount’ as part of the calculation of the permitted maximum for a pension commencement lump sum.
Non-UK members and enhancement factors
The No. 3 regulations also include amendments in relation to the calculation of the non-residence enhancement factor. By way of background, where members have been tax resident outside the UK while accruing benefits, they can apply to HMRC for a lump sum and death benefit allowance enhancement factor (and before the removal of the lifetime allowance they could apply for an LTA enhancement factor). It is no longer possible to accrue periods of overseas service that count towards an enhancement factor – this ceased as of April 5, 2024. Members who have built up periods of overseas service prior to that date must claim any applicable enhancement factor by the earlier of the date that would have applied under the previous rules and 5 April 2025. HMRC has stated that individuals who are relying on an enhancement factor certificate dated before 6 April 2024 can continue to rely on that certificate. The separate ROPS transfer enhancement factor has similar provisions – the deadline for notifying HMRC is April 5, 2025 and only transfers prior to April 6, 2024 can be counted. Schemes may wish to consider whether to update members about these changes (in particular, the April 2025 cut-off for new claims) and whether administrative practices need to be updated.
Read the (No. 2) regulations. Read the draft (No. 3) regulations.
Government consults on extending CDC regime
The Government is consulting on extending the framework for collective defined contribution (CDC) provision. Non-associated multiple employer CDC schemes are excluded from operating under the existing provisions, which are restricted to single or connected employers; the draft legislation would remove this exclusion and set out what schemes of this type must do to become authorised.
As the Pension Schemes Act 2021 includes powers to amend the Act to provide for an authorisation and supervision regime for unconnected multiple employer CDC schemes and to make consequential modifications or amendment to other primary legislation, most of the changes needed can be made via the regulations that are now under consultation. It is proposed that the definition of whether employers are connected with each other will be aligned with the current definition that applies to determine whether a scheme is a master trust scheme. The framework will accommodate schemes that are intended to operate on a commercial basis and the authorisation criteria will include controls on the promotion or marketing of schemes to ensure that this is clear and not misleading.
The consultation closes on November 19, 2024.
Related capabilities
