Members of money purchase occupational schemes may be afforded the same drawdown flexibility as pers...
Members of money purchase occupational schemes may be afforded the same drawdown flexibility as personal pension schemes under the Government's latest proposals
In the proposed integrated tax regime for DC pensions, money purchase occupational schemes have the option to remain under the old regime or switch into the same tax regime as personal pensions
This could add extra complexity for trustees and employers in that they must decide which regime is best for their members and may even lead to employers offering both options
It could also mean that some members who would not have been eligible for personal pension drawdown because of funding restrictions may not have to go through the complex transfer process of the GN11 testing. The Department of Social Security and the Inland Revenue's joint consultation paper on stakeholder states that if the scheme transfers to the new regime it would be treated exactly the same as other DC schemes
This would mean it could apply for drawdown in the same manner as personal pensions, a more flexible vehicle then occupational drawdown plans
The paper does state that there is concern that a DC money purchase scheme that switches into the new regime could then be overfunded
This is because under the new regime there are no limitations on benefits that can be taken, only on contributions that can be made. The Inland Revenue has asked for views on how this option can be best handled and how any potential overfunding in a scheme might be identified and handled
Stewart Ritchie, director of pensions at Scottish Equitable, said: "There may be some surplus tests done when a money purchase scheme switches to the new DC scheme. There will be cases where some of the members would be better off under the new regime while others would be better under the old, so how do employers act in the best interests of the members
John Glendinning, director of pensions at Scottish Amicable, said: "Overfunding is much less a risk today than a few years ago and the Revenue could take the view there isn't any need to make any formal check that would be the optimum solution. However, the problem is that there will be different people in the scheme at different stages looking for different things and some will be disadvantaged through a switch
"It will be a difficult choice for trustees and they will certainly need advice. If the implications are adverse for some then they shouldn't make the change. Inevitably simplification immediately drives in a further level of complication. Trustees could look at splitting the scheme in two, migrating one and leaving the other but this would be both costly and time consuming
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