Pensions - Articles - New pensions tax law to decide how schemes equalise benefits


The Association of Consulting Actuaries (ACA) says it very much welcomes HMRC's recent publication of its third tranche of guidance on how pensions tax interacts with exercises to remove inequalities arising from GMPs (“GMP equalisation”).

 The guidance focussed on two important areas to help schemes take their projects forward. One is the use of GMP conversion to achieve GMP equalisation (rather than using the dual record approach on which it has already given guidance).

 Commenting on the guidance, Karen Goldschmidt, Chair of the ACA Pensions Tax Committee said: “Conversion is an approach that might give schemes a real possibility of simplification, although it has to be approached carefully. Responses to our recent survey (see below) show that many sponsoring employers and trustees are still undecided on the approach to take. Typically, we think that decisions have mostly been made for schemes in the throes of wind-up, and that for the rest some of the delay is likely to have arisen from the uncertainties of potential tax pitfalls.

 Extract from 2021 ACA Pensions trends survey: In relation to the obligation to equalise GMPs following the Lloyds case, what methodhave you decided/do you think you are most likely to use (excludes totally undecided)?

 

  “HMRC guidance gives reassurances for most pensioners but some confirmation that pitfalls exist for non-pensioners - and for these there is an indication that HMRC is working on the possibility of law change to remove Annual Allowance anomalies. This is welcomed and we hope this will be soon in coming, it may be a key factor in decisions on approaches.”

 The other area of the guidance relates to transfer values that have been underpaid in the past because of not allowing for the equalisation obligations – with transfer top-ups now due, often of tiny amounts. HMRC’s guidance in this area opens the door, in most cases, to some very practical approaches.

 ACA Survey ‘Pensions: Key reforms still needed to avoid crisis’  

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