Round-up of recent developments in UK pensions.

HMRC clarifies aspects of the LTA abolition legislation and promises further updates

HMRC has published Newsletter 155, in which it identifies legislative provisions that it intends to amend to accurately reflect policy intention.

One of the most significant areas of uncertainty is the Pension Commencement Excess Lump Sum. The Newsletter acknowledges that the legislation does not work as intended for members with multiple pension schemes and says that it is "considering how to address this including whether it may require legislative change". Legislative change is also expected to correct the calculation of the amount of a scheme-specific lump sum and reporting requirements.

The Newsletter includes a section on "frequently asked questions" (FAQs), in which HMRC offers confirmation in areas where uncertainty has been expressed, but we infer that HMRC does not believe changes are required to the Bill.

It will also be holding LTA working groups on transitional provisions (8 February) and reporting requirements (14 February), for which it will be issuing invites shortly.

HMRC states that it intends to publish further updates/clarifications (including examples) every two weeks and it already intends that these will cover pre-A-day pension rights, aspects of A-day protections, taxation of lump sum death benefits paid to non-qualifying persons and the overseas transfer allowance. It also invites representations on further areas where worked examples would provide clarity.

WTW comment

With such little time until the new regime comes into operation (6 April 2024), we are pleased that HMRC is offering clarifications and identifying areas where change can be expected. This newsletter and the future two-weekly updates (plus the working group meetings) will be invaluable in helping schemes to understand the detail of the new regime, enabling them to make appropriate changes to processes, systems and communications, minimising disruption to members.

However, in relation to the areas where legislative change is being considered, we still have little idea of what those changes will be. This information – and sight of the legislation amendments delivering them – is required imminently. Ordinarily, we would expect amendments to be made as the Finance Bill progresses towards enactment within Parliament. However, the Public Bill Committee stage, which is when amendments are tabled, debated and either accepted or rejected (or withdrawn), has already been completed (16 January). The pensions provisions – over 100 pages of legislation – were considered by the Committee for less than 15 minutes ...

In view of the above, it now seems all but certain that any changes will be made through regulations. The Bill contains extensive regulation-making powers enabling such changes, but the regulations cannot be laid until the Bill has been enacted (expected to be February or early March). We very much hope, therefore, that drafts will be shared in advance and look forward to the further, regular updates from HMRC.

For administrators, a new and potentially burdensome procedure is the ability for members to apply for a transitional tax-free certificate. HMRC says (within the FAQs in the Newsletter) that it expects "the vast majority of individuals will go through the standard transitional calculation and not apply for a transitional tax-free certificate." There is some logic to that statement, given that a transitional tax-free certificate will only make a practical difference to those who will otherwise exceed the new allowances – and they can only be applied for by those who will have crystallised benefits before 6 April 2024. With so much to do, administrators will certainly be hoping that HMRC is correct in its expectation. The legislation is clear that the certificate must be applied for in advance of members drawing, broadly, a post 6 April 2024 tax-free lump sum, and so there may be members who apply 'just in case'. HMRC has clarified that, in its view, the certificate must also be applied for from the scheme which pays the first such tax-free lump sum.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.