Pensions are often used as a political football in the run-up to an election. It’s open to debate whether we are seeing evidence of this again. One thing is for sure, pensions policy is once again being used by a number of parties to influence the votes of the British public.
It would seem that the Chancellor was not content with shocking everyone with his 2014 Budget announcement that restrictions on the ability to withdraw funds from pensions were to be removed. He has again surprised many with the news that the tax charge applied to some lump sums paid following death is to be scrapped.
Where someone dies before starting to take benefits from their pension, lump sum death benefits have normally been tax-free. However, where the individual died after benefits had been taken, lump sum death benefits have been taxed at 55%. This will change going forward.
The rules currently work as follows:
The new rules will look like this
As you can see there some benefits for retirement through UK pensions but the devil is in the detail and some questions still need to be asked:
- Will the changes also apply where a death occurred before George Osborne’s announcement?
The Treasury have said that they will apply where the deceased died before the announcement and funds have not been designated to a dependant, but it isn’t clear if this is the case where they have been designated.
- Where death occurs after the deceased’s 75th birthday, what will define whether a payment is a pension or a lump sum?
A lower rate of tax will apply to pensions than lump sums from 6 April 2015 until 5 April 2016. Can one or maybe two payments from the fund qualify as a pension rather than a lump sum?
- Where a beneficiary dies whilst in receipt of a beneficiary's pension, will the age of the member at death, or the age of the beneficiary at death, determine which rules apply and who will be allowed to receive payments following the death of the beneficiary?
- How will the marginal rate of tax be applied on payments to beneficiaries? Will the pension scheme administrator have to apply a standard rate of tax on payments to beneficiaries with a balancing payment made via the individual’s personal tax return, or will the pension scheme administrator have to attempt to apply the correct tax code?
As with every change in UK pensions it depends on the detail and then how the implications will affect Expats especially to QROPS which look increasingly like the poorer relations to a SIPP/UK pension
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