Retrospective changes to preservation requirements for deferred pension rights could decide whether IFAs face a tough year advising the majority of their clients on which transitional protection to apply, warns Steve Bee.
Bee, head of pensions strategy at Scottish Life, says the coming Pensions Bill, which is likely to propose a change to the preservation requirements. This could in turn influence how advisers act on proposed legislation on transitional protection set out in the Inland Revenue's second simplification paper published in December.
According to the IR, UK pensions rules face retrospective changes. However, Bee says, for this to work, people who have already "left the service" and have deferred pension rights will need to change their preservation rights retrospectively.
If that happens, a person who, for example, has a paid-up pension with valuable pre-1987 rights attached, will have to apply for Enhanced Protection (EP - one of the two options, the other being Primary Protection). However, that would only be necessary if the preservation requirements that applied when the person "left the service" - and on which their preserved benefit promises were based - are taken away from them retrospectively by a change in the law too, Bee says.
He adds: "If so, this is where we'll see it. If not, then the Revenue's requirement for people to certify protected benefits won't mean much and all those people with deferred benefits won't have to be contacted by their advisers before next April to make sure they understand they can apply for Enhanced Protection."
Furthermore, Bee believes IFAs should be wary of the DWP's proposal for a possible reduction in Limited Price Indexation (LPI). If this comes into effect, it could result in TWO tax regimes, instead of the simplified single tax regime, which the Revenue is proposing to put in place.
Bee also believes the following issues are important to keep an eye on when the Bill comes out - perhaps as soon as tomorrow:
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