The HM Revenue & Customs has announced a change to the way commencement lump sums will be calculated following A-Day.
In March the Revenue announced consultation to discuss how pension commencement lump sums should be calculated from schemes providing pensions from money purchase arrangements.
Following meetings with various representative bodies, the government proposes to introduce legislation in the 2006 Finance Bill to change the calculation of such pension commencement lump sums.
Under new legislation, to be implemented from 6 April 2006, where a scheme pension is provided from a money purchase arrangement the pension commencement lump sum will be calculated as 25% of the funds used to provide the benefits.
The Revenue says: “This legislation will not alter the way that the lifetime allowance charge is calculated for such pensions.”
John Lawson, marketing technical manager at Standard Life, says this will be useful in the case where British men might have left their spouses off their annuity.
He says it will also make it easier for providers to explain to customers, as keeping the level at 25% makes calculations far simpler.
Moreover, the Revenues has announced its intention to legislate a new ‘benefit crystallisation event’ for individuals who reach age 75 with an unsecured pension fund.
A benefit crystallisation event is the point where a persons pension savings are measured against the lifetime allowance.
Lawson says those individuals considerring enhanced protection should check their benefits at the age of 75.
The proposed legislation will be issued in draft form this summer, with the aim of implementation for 6 April next year, according to the HMRC.
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