Budget 2014: legislation published
By Ian Greenstreet
Hot on the heels of the government’s response to consultation in July, we now have a draft Taxation of Pensions Bill. This gives more detail on how the new pension flexibilities will work in practice (from 6 April 2015) and the new annual allowance provisions intended to prevent abuse of the tax system. The new provisions will apply to ‘money purchase arrangements’ as defined in the Finance Act 2004. This is much wider than the new definition of ‘money purchase benefit’ in the pensions legislation and includes cash balance arrangements as well as ‘pure’ money purchase or defined contribution (DC).
Essentially, there will be two options for individuals with money purchase arrangements. Take a tax-free lump sum and designate an associated amount for drawdown or take a lump sum (25 per cent), which will be tax free, and the remainder taxed as income. This gives members significantly greater flexibility as to when and how they access money purchase funds.
The provisions are enabling. Schemes will not be required to offer the new flexibilities. Many DC occupational schemes may not want to offer them because of the additional administration costs involved. Many schemes are likely to want to offer members the right to transfer out up to the point of retirement so that they can access new products in the market or take a one-off lump sum…
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