Following the usual frenzy of pre-Budget speculation, trustees, sponsors and members of pension schemes may be breathing a sigh of relief. There are no un-expected bombshells this time, unlike last year’s inheritance tax announcement, but change is coming with the introduction of a £2,000 cap on pensions salary-sacrifice. Our pre-Budget note provides more detail on the consequences of this trailed change across various salary levels. It is welcome that schemes and their sponsors have until April 2029 to adjust to the new regime.
Personal Representatives (PRs) will welcome changes which should make it easier for PRs to deal with inheritance tax liabilities in relation to pension schemes for deaths on or after 6 April 2027.
Tax-free lump sum provision and the existing tax regime for pensions are unscathed.
Relevant recipients of compensation from the Pension Protection Fund or assistance from the Financial Assistance Scheme will welcome the proposals to provide indexation up to 2.5% per annum on pre-1997 accrual – but this is only available where indexation had previously been promised from their former employer’s scheme.
On defined benefit surplus extraction, the Government also proposes to amend tax legislation to allow surplus to be shared with older members through direct payments. Currently these would be unauthorised and subject to penal tax charges.
Further detail on each of the above is covered in our Pensions Briefing article, together with comments on the impact of the many frozen thresholds, other aspects included in this year’s Budget, and commentary on the wider economic impacts.
