Such is the gap between the government’s policy intentions and the legislation as delivered that HMRC has been forced to recommend that some people delay retirement where possible to avoid being caught by incorrectly drafted law.
Ever since the Chancellor announced the abolition of the LTA in his 2023 Budget, experts have warned that the timetable of full abolition by April 2024 was ambitious.
Although an Act of Parliament running to more than 100 pages has been passed to implement the change, it has been found to be incomplete in some areas and not correct in others, requiring secondary legislation to rectify both.
HMRC have kept the industry updated by regular newsletters as well as workshops , and in a newsletter published on 4th April (No. 158), HMRC acknowledged that further changes would be needed, saying: “schemes should ensure that members are aware of the need for further legislative changes. As a result, members may need to wait until the regulations are in place before taking or transferring certain benefits. This is to ensure that their available allowances and tax position do not need to be revisited later in the year”.
Three weeks later, HMRC issued a further newsletter (No. 159, published on 25th April) which confirmed two new errors in the legislation alongside a lengthy separate document on a variety of aspects of the new pension tax regime, including a number of promises to fix errors or omissions in the Act. Worryingly, HMRC has given no indication of a firm end date by which all of these changes will have been made.
LCP has identified more than a dozen separate areas where HMRC is promising further changes to the rules, and these include:
• Measures to protect members with ‘scheme-specific’ protection, allowing them to take larger than normal amounts of tax-free cash when drawing their pension;
• Changes to enable members with enhanced protection to be able to transfer to a new provider and not lose this valuable protection
• Transitional rules around tax-free cash taken before the new regime was introduced and how this is to be calculated
• Additional disclosure requirements so that providers have the information necessary to be able to operate the new tax regime
HMRC has indicated that where a member might face financial hardship because of a delay in accessing their pension because of uncertainty around the rules, it will seek to help on a case-by-case basis.
Commenting, Alasdair Mayes, partner at LCP said: “Despite over a hundred pages of legislation, we still do not have final legal certainty on exactly how the abolition of the Lifetime Allowance will be implemented. There remain far too many unanswered questions, despite the fact that the LTA officially ceased to exist several weeks ago. We appreciate that HMRC is doing its best and is having to cope with a timetable driven by policy makers, but this whole experience shows why we need stability in pensions tax legislation. It is to be hoped that pensions tax does not become a political football. A worrying number of people in their late 50’s and early 60’s have already left the workforce and further changes to pension tax relief won’t just cause disruption to members and pension providers but also risk making the situation worse”.
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