Secondary legislation
Up-rating the Lifetime Allowance and the Annual Allowance
Using the power in Finance Act 2004 HMRC will be making in the New Year a Treasury Order to provide for the increases to the Lifetime Allowance and the Annual Allowance that were announced at Budget 2004. The increases are as follows
| Year | Lifetime allowance | Annual allowance |
|---|---|---|
| 2007/08 | 1,600,000 | 225,000 |
| 2008/09 | 1,650,000 | 235,000 |
| 2009/10 | 1,750,000 | 245,000 |
| 2010/11 | 1,800,000 | 255,000 |
Draft Regulation
To ease administration burdens draft regulations for bridging pensions and the information requirements for deferred annuity contracts will be published in the New Year to be followed later by regulations concerning transitional protection and transfers and the modification of rules of existing schemes.
Bridging Pensions
Changes were made in Finance Act 2006 to accommodate the reduction for bridging pensions which took account of the different rates of relevant State retirement pension between those scheme members who had contracted-out of the State Earnings Related Pension and those who had not contracted-out.
A power was also inserted so that HMRC could provide by regulations for a different rate of reduction in scheme pension for members with a mix of contracted-in and contracted-out employment in the same scheme.
Draft regulations will prescribe how a scheme may calculate a different rate of reduction of the scheme pension where the employment of the member has been partly contracted-out. These regulations will ease administrative burdens on schemes, and will be published in draft for consultation.
Information Requirements for Deferred Annuity Contracts
Deferred Annuity Contracts (DACs) set up on or after 6 April 2006 (A-day) are deemed to be registered schemes and do not need to go through a registration process. However, unlike their pre A-day counterparts currently they are required to notify HMRC of their winding-up. This is a significant administrative burden for insurers and HMRC especially as, in most cases, winding-up simply results from the deferred annuity coming into payment.
To remove this administrative burden HMRC intend to remove the requirement to notify winding-up from post A-day DACs unless the scheme has already been put onto the HMRC data base. We will be therefore be publishing for consultation a regulation removing the information requirement from a DAC scheme administrator where the first event the administrator needs tell HMRC about is the winding up of the DAC.
Some insurers pay a small sum into DACs before they come into payment to enhance the retirement lump sum. HMRC intend to also cover these DACs in the proposed administrative easement.
Transitional protection and transfers
The Government proposes to amend the transitional Order (SI 2006/573) dealing with transfers and the reorganisation and winding up of occupational pension schemes. At present, the Order allows individual transfers to annuity contracts (“buy-outs”), consequent on the winding up of a scheme, to be treated as if they were “block transfers”. This preserves within the annuity contract any transitionally protected entitlements to early pension ages or tax-free lump sums worth more than 25% of total rights. It is proposed to extend the terms of the Order so that the protection is also preserved where an existing insurance contract is “assigned” to the individual member.
In addition, it is proposed to amend the provisions of the Order relating to transfers consequent on scheme reorganisations in the period between 10 December 2003 (the date of publication of the pension simplification proposals) and A-Day. These amendments will extend the protection of early pension age entitlements, so as to cover deferred members whose rights were not wholly transferred in a single transaction because of the effect of contracting-out legislation, or whose former employer had no involvement with the scheme to which they were transferred.
Modification of rules of existing schemes
The Government also proposes to lay a new Order to deal with the difficulty faced by those occupational schemes whose rules contain a condition that no amendment to the rules may be made unless “approved” by HM Revenue & Customs. As “approval” is now an obsolete process, the trustees of these schemes are effectively prevented from amending the scheme rules. The Order will provide an over-ride to any provision in the rules which makes amendment of the rules subject to HMRC approval.
