Pensions: what's new this week - March 18, 2024
Regulations published on lifetime allowance changes
Regulations making a number of changes to the new legal framework replacing the lifetime allowance have been published and will come into force on 6 April 2024. Key changes include the following:
- The introduction of a temporary overriding provision relating to scheme rules that impose a benefit cap by reference to the current lifetime allowance. The regulations disapply the changes made under Part 4 of Finance Act 2024 in relation to this specific type of rule until 5 April 2029. The override may provide more breathing space for schemes where the rules include this type of benefit cap, but which have not yet actioned changes to address the issue.
- A new provision making clear that where a member becomes entitled to a lump sum before 6 April 2024 and that lump sum is paid on or after that date, the changes in the legislation are to be disregarded for the purposes of determining tax treatment.
- Removal of the ‘permitted maximum’ from the calculation of a pension commencement excess lump sum (PCELS), as previously announced by HMRC. Under the changes made in these regulations, a PCELS may only be paid where an individual has already used up both their lump sum allowance and their lump sum and death benefit allowance.
Other changes resolve various technical issues identified, for example, in relation to reporting requirements.
Tax charge on refunds of surplus to be reduced from 6 April 2024
The Authorised Surplus Payments Charge (Variation of Rate) Order 2024 has been published – this is the Order reducing the authorised surplus payment charge from 35% to 25% from 6 April 2024.
The tax charge is payable by scheme administrators on the amount of the authorised surplus payment made. The conditions that must be met to permit a refund of surplus to a sponsoring employer remain unchanged.
Annual Pensions Increase (Review) Order published
The annual Pensions Increase (Review) Order 2024 specifies the rate of annual increase for official pensions (such as ministerial and civil service pensions) and is also used as a reference point for indexation rules in some private sector schemes with a public sector history. The latest order sets the increase at 6.7% for pensions that began before 10 April 2023. The Order comes into effect on 8 April 2024.
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