Draft regulations for the protection of tax free cash and earlier retirement ages when a scheme winds up have been slightly extended and reissued by Her Majesty's Revenue and Customs (HMRC).
The rules governing the winding up of a scheme and the transfer to a deferred annuity, or Section 32 (S32) plan, were originally published in September last year, and protected certain pre-A-Day rights such as earlier retirement ages, and a tax free cash allowance greater than the 25% allowed after A-Day.
In the original draft the Revenue issued two circumstances where pre-existing rights would be protected during transfers. In the first case an early retirement age would be kept providing the transfer came under the Transfer of Undertakings Protection of Employment (TUPE) Regulations and took place between 10 December 2003 and A-Day.
Secondly it allowed the right to take benefits before the normal minimum pension age, or to a tax-free lump sum in excess of 25% of a pension fund, to be protected if the scheme winds up after A-Day and benefits are secured by transferring into an S32 plan or by transferring into another scheme as part of a block transfer.
Following representations from the industry, HMRC has reissued draft regulations with two extra areas of flexibility, the first of which is the protection of an earlier retirement age if the employer has reorganised its pensions scheme sometime between 10 December 2003 and A-Day.
The second modification is if the winding-up of a pension scheme starts but not finishes before A-Day, any transfer to a S32 plan will still get protection of tax-free cash.
Rachel Vahey, head of pensions development at Scottish Equitable, says the new flexibility will hopefully make things clearer for schemes which start winding-up before A-Day.
But she adds: “Although both the draft regulations and the added flexibility are to be welcomed, with just 30 days to go until A-Day, surely we should be seeing the final regulations, to allow advisers to work with their clients in confidence to make sure their pension affairs are in the right place before A-Day.”
John Lawson, head of pensions policy at Standard Life, says although interesting, the changes will not have too much affect as there are not that many schemes with early retirement ages, apart from specialist ones for people like professional footballers.
He adds: “Under the old regulations you had to be a member of a pension scheme as of 10 December 2003 or if you transferred you could lose your rights. This extension allows schemes which have been restructured after the 10 December but before A-Day to still be allowed protection, so it is just extending the previous rules into the intervening period.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
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