UK Pension reform

The UK Government from time to time introduces new UK pension rules that define how pensions are managed. As the pension landscape changes we will keep you up to date with any new reforms that the government introduces.
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In April 2015, the tax rules were changed to give people greater access to their pensions. Drawdown of pension income is taxed at marginal income tax rates rather than the previous rate of 55% for full withdrawals. The tax-free lump sum continues to be available. In order to support their decisions, individuals have access to free and impartial guidance.

There are a number of options available including:

  • Leaving the pension pot untouched
  • Purchasing an annuity
  • Getting an adjustable income (Flexi Access Drawdown)
  • Taking cash in chunks (Uncrystallised Funds Pension Lump Sum)
  • Cashing in the whole pot in one go and mixing any of the options

Main provisions of the Pensions Act 2014

Defined benefit/final salary schemes
State Pension reform (the single-tier pension)
The Act contains provisions to implement the single-tier state pension as set out in The single-tier pension: a simple foundation for saving. The single-tier pension will replace the current basic State Pension and additional State Pension with a flat-rate pension that is set above the basic level of means-tested support for people who reach State Pension age on or after 6 April 2016.

Voluntary National Insurance contributions (Class 3A)
The Pensions Act provides for a new type of voluntary National Insurance contribution, which will be known as Class 3A. This new voluntary National Insurance contribution will allow pensioners who reach State Pension age before 6 April 2016 to top-up their additional State Pension.

Bringing forward the increase in the State Pension age to 67
This change will mean that the State Pension age will gradually rise from 66 to 67 between 2026 and 2028.

A framework for future changes to State Pension age
The framework provides for a regular review of the State Pension age, based around the principle that people should spend a given proportion of their lives receiving a State Pension.

Bereavement benefits
The Act contains provisions to introduce Bereavement Support Payment to replace the existing bereavement benefits for new customers. The reforms will significantly simplify the system by moving to a more uniform payment structure with support focused on the period immediately following bereavement and a single contribution condition.

Automatic transfers
The Act introduces a framework to provide for a system of automatic transfers of small pension pots so that an individual’s pension will follow them to their new pension scheme when they change jobs. This will help individuals to consolidate their pension saving and benefit from having their pensions in fewer places.

Automatic enrolment
The Act contains a number of amendments to the Pensions Act 2008 in relation to automatic enrolment in to workplace pension schemes. These are designed to address technical issues and clarify existing powers ahead of the next major staging milestone for automatic enrolment in spring 2014.

Charges and quality standards in workplace pensions
The Act contains powers to allow the government to introduce minimum governance and administration standards and restrict charges in workplace pensions. In Better workplace pensions: further measures for savers the government announced that it intends to use these powers to restrict high and unfair charges and strengthen governance in defined contribution workplace schemes.

Other private pensions measures
The Act contains a number of other measures relating to private pensions, many of which strengthen existing legislation.

In summary, these are:

  • provision for the abolition of short service refunds for people who leave a money purchase occupational pension scheme after 30 days but within 2 years
  • a new power to make regulations to prohibit the offering of incentives to transfer pension scheme rights
  • an amendment to the Pension Schemes Act 1993 to require the disclosure of information about transaction costs
  • a power to require Pension Protection Fund pension levies to be paid in respect of past periods
  • measures relating to the prohibition and suspension of corporate trustees
  • an amendment to the Companies Act 2004 so that a body preparing guidance in relation to pension illustrations may be exempt from liability for damages (such as financial loss)
  • the introduction of a new statutory objective for the Pensions Regulator, to minimise any adverse impact on the sustainable growth of sponsoring employers when exercising its functions relating to scheme funding
  • provisions allowing the Pensions Regulator to increase the maximum period between scheme returns to 5 years for schemes that have between 2 and 4 members (micro schemes)
  • measures to restructure the Pension Protection Fund compensation cap to better protect long serving scheme members
  • an amendment to the Public Service Pensions Act 2013 to allow smaller public body pension schemes to transfer accrued rights into one of the larger public service schemes