This months’ round up of recent developments in UK pensions covers a range of topics including scheme returns, the lifetime allowance and updated cyber security guidance from TPR.
Lifetime allowance (abolition) guidance newsletter – December 2023
Glyn Bradley | December 21, 2023
HMRC have published their Lifetime allowance guidance newsletter – December 2023 on the abolition of the lifetime allowance. Following the Autumn Statement and the presentation of the Finance Bill last month, the guidance reconfirms the Government’s intention to abolish the lifetime allowance from 6 April 2024, and the intended effect of the legislation currently before Parliament. It includes overviews of the new tax-free cash limits, amended trivial commutation valuations, the new overseas transfer allowance, and the reintroduction of charges on certain lump sums paid from non-UK pension schemes. There will be a final 5 April 2025 cut-off for fixed protection, individual protection, as well as for international and pension credit enhancements.
HMRC also confirm changes from the draft legislation on which it consulted over the summer, so that trivial, small and wind-up lump sums will not reduce members’ lump sum (and death benefit) allowances; and that no income tax will be payable on beneficiaries’ drawdown and annuity income if those pensions derive from uncrystallised rights and a member’s death under age 75. The guidance acknowledges a mistake in the Finance Bill and confirms that a new reporting requirement will apply only to any lump sums paid over the new (standard) allowances. At present the Bill says all lump sums need to be reported – this will be corrected at the “earliest opportunity”.
Scottish government to increase income tax rates from 6 April 2024
Dave Roberts | December 21, 2023
The Scottish government has the power to set its own income tax rates and bandings (other than the personal allowance). It announced these for the 2024-25 tax year on 19 December 2023, increasing the top rate of tax by 1% to 48% (on earnings over £125,140) and introducing a new “advanced rate” of 45% for earnings between £75,001 and £125,140. The rates for the rest of the UK had already been confirmed in the Autumn Statement.
From 6 April 2024, Scotland will have six bands of income tax, compared with three in the rest of the UK.
Scottish income tax bands
Scotland income range
Scottish rate
Starter rate
£12,571 – £14,876
19%
Basic rate
£14,877 – £26,561
20%
Intermediate rate
£26,562 – £43,662
21%
Higher rate
£43,663 – £75,000
42%
Advanced rate
£75,001 – £125,140
45%
Top rate (Additional rate rest of UK)
Over £125,140
48%
The standard personal allowance is £12,570 across all of the UK and this is withdrawn at a rate of £1 for each £2 of income, meaning that once an individual has income of £125,140 they receive no personal allowance. Within the income range of £100,000 – £125,140, this increases the effective tax rate by half as much again, so 67.5% in Scotland and 60% in the rest of the UK. On top of this, individuals pay 2% national insurance contributions (NICs) on earned income.
The Pensions Regulator (TPR) has updated its “Cyber security principles for pension schemes”. In the accompanying press release, TPR asks trustees to report significant cyber incidents, as soon as reasonably practicable “so it can build a better picture of the cyber risk facing the industry and its members.” Although such reports would be on a voluntary basis, trustees also need to consider their statutory whistleblowing duties to report material breaches to TPR – a cyber incident that resulted in late benefit payments is quoted as an example of such a breach.
The Financial Conduct Authority (FCA) publishes a regulatory ‘grid’ twice a year on behalf of the Financial Services Regulatory Initiatives Forum. The Pensions Regulator (TPR) is a member of the forum so a number of the initiatives relate to occupational pension schemes. The intention is to set out the regulatory pipeline over the next 24 months so that the financial services industry and other stakeholders can plan for the timing of initiatives that may have a significant operational impact on them.
Regulations retain the effects of EU-related judgments in UK Law
Kirsty Cotton, Janine Bennett | December 8, 2023
The Government has published regulations to retain the effects of four EU-related judgments in UK Law. The regulations remove the Pension Protection Fund (PPF) compensation cap provided for under the Pensions Act 2004 (following the Hughes judgment) and introduce a new provision for schemes with an assessment date on or after 1 January 2024. This requires PPF compensation payable to be adjusted to ensure that its value at the beginning of the assessment period is at least 50 per cent of the benefit value immediately before the assessment date (as required by the Hampshire judgment). Separate regulations similarly retain that a real-life comparator is not required for GMP equalisation (following the Allonby judgment) and that a same-sex survivor is entitled to a full survivor’s pension (as required by the Walker judgment).
The Pensions Regulator (TPR) has published additional information and resources to help prepare for completion of DB and hybrid scheme returns in 2024. The return will be in one part (in the previous scheme return for completion in early 2023, additional questions were issued using a separate online form) and will include new questions requesting information about fiduciary managers and investment consultancy providers. TPR will issue return notices from the end of January and they must be submitted using the online Exchange system by 31 March 2024.
