When the Finance Bill receives its expected Royal Assent later in July, these investors will have access to income drawdown, a key aspect of the Government’s pension reforms, as well as their protected higher tax free cash.
At ‘A-Day’ (6 April 2006), many defined contribution occupational pension scheme members had a right to tax free cash lump sums that exceeded 25% of their pension fund. Many also included the right to take their pension before age 55. However, these people often do not have access to income drawdown. They have the choice of taking their protected cash entitlement and buying an annuity, or losing their protected tax free cash if they wish to access drawdown.
Currently, an individual can only transfer to another scheme and retain their protected tax free cash and retirement age if they meet the “block transfer” conditions. One of these conditions requires another member of their scheme to transfer with them to the new scheme, known as “buddying-up”. Often individuals are unable to find another member of their scheme to ‘buddy-up’.
The amendment to the Finance Bill removes the need to ‘buddy-up’, meaning that individual members of occupational pension schemes in this position would be able to transfer their pension savings to another, more flexible scheme without suffering the loss of their additional tax free cash. To do this they will have to ensure they transfer before the 6 April 2015 and take their benefits before October 2015.
Adrian Walker, retirement planning manager at Skandia, said: “Many people in occupational schemes may have been severely disappointed to realise that their access to the proposed new world of pensions flexibility would be limited by these Block Transfer rules.
“In our post-budget submission to the Treasury we pointed out that current rules would prevent those with protected tax free cash from benefitting from the April 2015 reforms.
“We suggested ways in which the reforms could be introduced so that the rationale behind the current legislation is not lost, but to make all the proposed alternatives for drawing the defined contribution pension benefits available to them.
“This amendment to the Finance Bill is a step in the right direction on the way to the full reforms when they are legislated for later this year and we welcome this move from the treasury.”