UK: Budget 2016 – What are the implications for pension flexibility rules?
The Chancellor did not make any major changes to the pension industry in his March 2016 Budget. There were a few amendments to the pension flexibility rules. These new rules will be part of the Finance Bill 2016. The below rule changes are set to have effect on the day after the date of Royal Assent to Finance Bill 2016.
Serious Ill Health Lump Sums
The criteria for Serious Ill Health Lump sums will be altered. Prior to the 2016 Finance Bill the Serious Ill Health Lump sums could only be taken on funds that were uncrystallised.
Once the Bill has been given Royal Assent the Serious Ill Health Lump sums will be able to be taken on crystallised funds as well.
The 45% tax charge on Serious Ill Health Lump sums paid to individuals who have reached age 75 will be replaced with tax at the individual’s marginal rate.
Money Purchase Trivial Commutation
Trivial Commutation disappeared for Money Purchased Schemes on 6th April 2015 due to the availability of Uncrystallised Funds Pension Lump Sum (UFPLS). The 2016 budget will reintroduce it for clients with Money Purchase Scheme pension that are already in payment and their total pension wealth does not exceed £30,000.
Dependant’s drawdown and flexi-access drawdown
Where an individual has a dependant’s drawdown or dependant’s flexi-access pension fund due to being under the age of 23, they will be able to continue to receive drawdown pension or flexi-access drawdown pension as authorised payments after reaching age 23. The tax treatment will depend on the age at death of the original pension member (see Death Tax Benefits Section above).
Charity lump sum death benefit
A change is made to align the tax treatment of a charity lump sum death benefit after a member has died under the age of 75 whether paid out of drawdown pension funds and flexi-access drawdown funds or out of funds that have not been accessed (uncrystallised funds).
The need to pay an uncrystallised funds lump sum death benefit, a drawdown pension fund lump sum death benefit or a flexi-access drawdown fund lump sum death benefit within two years when it is paid to a charity is also removed.