Pensions update: Lump Sums from Pensions Schemes - Budget takes effect
Yesterday (17 July 2014) Parliament enacted the Finance Act 2014. This implements a number of changes which were announced in the 2014 Budget in March, including those relating to lump sums payable by pension schemes to scheme members.
In more detail
Specifically, when a member's benefits become payable and the member is aged at least 60, he or she can trivially commute their benefits. Looking just at their rights in one scheme the level for trivial commutation of those rights is now £10,000 instead of £2,000. This means that instead of paying the member a pension, all of the member's benefits (including - subject to the scheme rules - those relating to a spouse) can be paid as a single lump sum, where the value of those rights converted to a lump sum is under £10,000.
Separately, where all of a member's schemes are taken into account, a higher commutation limit applies. Up until the Budget this was £18,000 and it is now lump sums totalling £30,000.
The changes are expressed to be retrospective to 27 March 2014 (the date of the Budget) and so legitimise commutations which were made since the Budget and prior to the legislation being passed. Our advice to clients had been not to allow commutations during that period at the higher levels because, until the legislation was passed, the law remained at the lower levels, meaning that commutation at the higher levels would appear to be an unauthorised payment and so would be reportable to HMRC as an unauthorised payment in the scheme's quarterly reports.
Where payments have not yet been reported, it would appear that the Finance Act 2014 by acting retrospectively provides that a report would not now have to be made.
For further information or tailored advice please contact your usual Fieldfisher adviser or one of our pensions partners, Michael Calvert or David Gallagher.