Differences of opinion over the effects of provisions in the Finance Bill by two major providers has highlighted the difficulty of interpreting proposals set out in the legislation.
At stake are proposed amendments that would enable pension scheme members to protect any funds they have built up before the lifetime allowance comes into force on 6 April 2006, exempting them from paying any recovery charge on pensions above that limit.
But, while the issue of transitional protection seems pretty straight forward, there is less clarity when it comes to deciding how contracted out rebates should be treated if members opt for enhanced protection.
Abbey for Intermediaries' head of pensions and retirement Mike Brown believes personal pension scheme members who decide to protect their pension funds by adopting enhanced protection could see their enhanced protection invalidated if they contracted out of the State Second pension (S2P).
This is because contracted out contributions would effectively invalidate enhanced protection as they would count as further accruals, he suggests.
According to pending pension legislation, people opting for enhanced protection are not allowed further accruals or contributions after the new rules come into force on 6 April 2006.
This means rebates as small as £1 could invalidate enhanced protection, Brown adds.
However, John Lawson, senior technical manager at Standard Life says "that's definitely not the case" as contracting out rebates would not count as "relevant contributions".
Lawson adds the Inland Revenue specifically changed a paragraph in the Finance Bill to avoid invalidating savers' protection.
Brown counter-argues by saying paragraph 13 (3) of Schedule 34 in the Bill states that a relevant contribution is paid if “a relievable pension contribution is paid by or on behalf of the individual".
“A PPS rebate is paid on behalf of the individual by the Inland Revenue, and includes basic rate tax relief on the employee's share. Para 13(4) excludes from this "minimum payments under section 8 of the Pension Schemes Act 1993" ie minimum payments under COMPS only,” he argues.IFAonline
£92bn transferred since 2015
Achievements, charity work and other happy snippets
Since first announcement