What do employers need to know about four major pieces of pensions legislation?
The Finance Bill 2014
This gave HM Revenue and Customs (HMRC) new powers to prevent pension liberation schemes being registered starting 20 March 2014 and made it easier to de-register such schemes if, in HMRC’s opinion, the scheme administrator is not a fit and proper person.
Pensions Act 2014
This received royal assent on 14 May, and sets the scene for the introduction in 2016 of a flat-rate state pension to replace the current two-component state pension (basic state pension and additional Serps/S2P element). The act brings forward the date when the state pension age (SPA) rises to 67 and sets the framework for the SPA’s review.
People who have reached the SPA before 6 April 2016 will have a chance to buy class 3A voluntary contributions to build up additional benefits. Some workplace schemes face complications because their benefit formula references the state pension. The act also looks at the impact on contracting out for employer pension schemes.
Pension Schemes Bill
Out on 26 June, this bill is designed to encourage pension scheme arrangements that offer an element of certainty or that involve pooling risk: so-called defined ambition schemes. This is ‘enabling’ legislation and no further news on it is expected for some time.
Taxation of Pensions Bill
Introduced into the House of Commons on 15 October, this bill deals with the new freedoms announced in the last Budget which, from April 2015, will allow people aged 55 to access their money-purchase pension as they want during retirement, subject to paying tax at their marginal rate.
It also introduces anti-abuse legislation to limit the potential for recycling tax allowances by limiting the contributions an individual can make once they have taken their 25% cash to £10,000 per year.
The bill surprised the industry by taking the new freedoms a step further by suggesting pension pots could be structured like deposit accounts, with withdrawals made at will but with tax payable on 75% of each drawdown.