WHAT'S COOKING IN PENSIONS
THE BIGGEST CHANGE IN DECADES IS HITTING THE PENSIONS WORLD. THE SHAKE- UP WILL LEAVE NO ONE UNAFFECTED, AND THAT'S WHY KNOWLEDGE IS AMMUNITION.
Wherever they are in the world Aries connects members with the big picture and the little details, the minutiae of each piece of legislation a pensions professional cannot afford to miss. Getting it wrong can be costly. For the pensions professional, Aries Insight is peace of mind.
The changes to trivial commutation of small pots is the topic that clients are most frequently asking about. Ian Neale, Director at Aries, says: "Among the many changes that the industry is facing at the moment, it is not surprising to see such a strong trend for questions on trivial commutation from our clients over the past few months. People want to get their money out if they can, and schemes are keen to slim their membership."
"Previously, members were entitled to a taxed refund of their pension pot if it was below £2,000 (but could take this from only two personal pension arrangements). An issue developed whereby many annuity providers would not accept a pot below £10,000 when creating a policy for members on retirement – meaning a large number of members were left with pots that were too large to commute back, but too small to get a competitive annuity. From 27 March this year however, the government has increased limits to £10,000 each from a maximum of three PP pots (and an unlimited number of other pensions)."
Neale adds: "This has created a surprising loophole: where formerly the Treasury was so concerned about people deliberately setting up small PPs and then cashing out that the maximum available was £4,000, they are now allowing up to £30,000. With the shift in attitudes towards pensions as long term savings plans these rules do something to encourage a greater level of saving from younger members towards old age, which arguably is much more important than the risk of a small amount of tax loss from determined rule-benders. There are, as always, some nuances to the new legislation and as a result we have seen a substantial number of queries from schemes wanting to get this right; especially for example where there is a GMP involved."
The undeniable political appeal of freedom of access - from age 55 - to pension savings will win many votes. But on one view, the Chancellor's plan for Pension Flexibility amounts to legalising pensions liberation, from age 55: even as simultaneously HMRC is tightening the screw on perceived miscreants. So, it seems, people - some people, that is; not those in public sector DB schemes, for example - are to be safely trusted, and don't need legal protections. For them, the cover of the nanny state is blown. Is that wise? Time will tell, but past experience - such as the Personal Pensions scandal of the 1990's - does not augur well.
HMRC says the primary objective of the QROPS regime is to enable individuals leaving the UK permanently to simplify their affairs by taking their pension savings with them to their new country of residence. A transfer to a scheme which meets three increasingly onerous sets of conditions: "overseas pension scheme", "recognised overseas pension scheme" and "qualifying recognised overseas pension scheme" is a recognised transfer under the FA 2004 regime.
A crucial weak point, however, is the individual does not have to live in the country where the scheme is located. A transfer to a QROPS is a recognised transfer even if the individual has never left the UK. The many different tax regimes on offer are an attraction, but the choice of jurisdiction - which country you pick - can prove fatal.
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