Last lifetime allowance changes (nearly) sorted

I have recently returned from nearly two months away from anything to do with pensions (well, aside from deciding I need a bigger fund to spend more time in all the places we visited once we didn’t have the kids in tow). When I left we were in limbo, still waiting for the promised regulations to correct the parts of legislation that HMRC hadn’t quite got right first time round in connection with the removal of the lifetime allowance.

On 4 April HMRC had assured us these regulations would be made “shortly”. I left in mid-July with no sign of them, although in HMRC’s defence they hadn’t known the election was going to be called as soon as it was.

Whilst I was away there was some progress: two sets of draft regulations were put out for consultation which corrected several errors. These include incorrect restrictions and / or calculations relating to those who have a protected lump sum dating back to pre A-day benefits, either in connection with enhanced or primary protection, or as a scheme-specific lump sum. They also fixed some issues on transfers, namely so that enhanced protection – and any associated protected lump sum – are no longer lost on transfer, and that transfers to overseas schemes (QROPS) are dealt with properly where pre A-day benefits and / or benefits in drawdown are involved.

The regulations also correct a few issues around age 75 for those that hadn’t taken all their tax-free cash before their milestone birthday. Currently the standard transitional calculation means the old age 75 lifetime allowance test will use up the new lump sum allowance. It also ignores the lump sums taken after the 75th birthday, as they weren’t BCEs under old rules. The change should mean that far fewer over 75s need to apply for transitional certificates.

One last change to highlight is that the regulations will fix the position so that any benefits put into drawdown under the old rules will not be tested against the new allowances on the member’s death.

The consultation on these regulations ended in the middle of August, but before becoming law they must be laid before parliament, with one set also requiring parliamentary approval. With the summer recess, only a short period sitting, then the conference recess, further delays ensued.

It has taken until this week (w/c 7 Oct) for the regulations to be laid. That they have finally made it to parliament is great news for those clients stuck in limbo, however neither set of regulations is due to come into force until 18 November; once in place they will be retrospective to the start of the tax year.

Over seven months of waiting will have been frustrating for some and is certainly stretching the definition of “shortly”, but at least we have light at the end of the tunnel.