Budget 2016: Pensions 2016

A number of changes were announced in the Budget, together with confirmation of changes that had been made in previous Budgets and the Autumn Statement.

A summary of the consultation responses on the proposed pension tax changes was also published, but as changes have been largely shelved for the present, this did not merit much comment in either the Chancellor’s speech or in the Red Book; needless to say, the consultation responses were overwhelming hostile to the idea of further change to the treatment of pensions.

Various provisions have been announced under the branding “Pensions Freedom and Choice”:

  • individuals who have started to draw on their pensions and become seriously ill will become entitled to draw down a serious ill-health lump sum – aligning their treatment with persons who become seriously ill before they access their pensions;
  • a pensioner who is over 75 will be taxed on any ill-health lump sum that they receive at their marginal rate instead of at the flat rate of 45%;
  • individuals under 23 who are receiving dependant’s drawdown or dependent’s flexi-access drawdown, will be entitled to continue receiving pension payments after they reach the age of 23 without suffering penal tax charges of up to 70%;
  • where an individual is already drawing pension benefits, but their fund is worth less than £30,000, they will be entitled to receive the balance as a trivial commutation lump sum;
  • where a fund has to be topped up to meet the entitlement of a deceased member’s beneficiaries, the top-up will be an “authorised payment” for the purposes of the legislation; and
  • a number of simplifications have been made to the rules on charity lump sum death benefits.

It was also announced that the exemption from income tax and NIC for pension advice will be increased from £150 to £500 from April 2017 and the Chancellor restated that the Pensions Lifetime Allowance will be reduced from £1.25m to £1m with effect from April 2016.

Finally, the informal review of unfunded employment retirement benefit schemes, which was announced in the Autumn Statement, has concluded, but no action has been announced, which suggests that this is an issue where the Treasury and HMRC believe that there are concerns, but can see no clear way in which to formulate a coherent policy.