Pensions Ready Reckoner - June 17, 2015

PARLIAMENT

Topic

Acts of Parliament

DC flexibility from April 2015 for those aged 55 and over

The Taxation of Pensions Act 2014, together with Pension Schemes Act 2015, have introduced DC flexibilities from age 55 onwards from 6 April 2015. Whether DC members can access the flexibilities depends on scheme rules and trustee decisions. Access is by drawdown from the member's "flexi-access drawdown fund", or drawing by lump sums known as "uncrystallised funds pension lump sums". Activating the flexibilities triggers the limited annual allowance of £10,000 for future money purchase contributions. The "lifetime allowance" tax limit continues notwithstanding the new DC flexibilities.

Member communications should be suitably caveated - individuals' options for DC flexibilities depend on what trustees allow.

The legislation provides more favourable tax treatment on death for individuals' DC pension pots and certain annuity funds.

Onerous HMRC reporting obligations are placed on trustees, individuals and DC providers operating the new DC flexibilities.

DC flexibilities

Regulations

A series of new Regulations and amendments to existing Regulations came into force on 6 April 2015. Notable are:

- amended Disclosure Regulations;

- amended Transfer Regulations; and

- Appropriate Independent Advice Regulations,

as supplemented by TPR's April 2015 Guidance on (1) DC communications and on (2) DB to DC transfers and conversions.

Key points under the new Regulations

(1) DC members must be given the option of receiving "guidance" on their DC flexibilities from the Government's "Pensions Wise" service. This is a free and impartial service provided by the Pensions Advisory service (telephone guidance) and Citizens Advice Bureau (face to face guidance). It is guidance not advice.

The Treasury will monitor the performance of these services. It is a criminal offence to pretend to be a Government authorised guidance provider.

Quality standards for the "Pensions Wise" service are set out in Rules made by the Financial Conduct Authority ("FCA").

(2) As required under the Appropriate Independent Advice Regulations, DB members seeking DB to DC transfers must first obtain independent appropriate advice from an FCA authorised adviser where the DB transfer value exceeds £30,000. Such advice is recommended where the transfer value is £30,000 or less. The FCA have made new Rules with effect from 5 June 2015, tightening the framework for advisers advising on transfers including DB to DC transfers. The FCA authorised adviser must be a "Pension Transfer Specialist".

Upshot of DC changes

The April 2015 DC changes have a substantial impact on many types of member communications...