The Finance Bill 2016/17 is going through Parliament. The Pensions Bill and the Lifetime Savings Bill outlined in the Queen's Speech have not been published yet.
Pensions Bill 2016
The Bill, announced in the Queen's Speech, will legislate:
- for a cap on early exit charges in occupational pension schemes
- to create a new guidance body that will bring together the services offered by the Pensions Advisory Service (TPAS), Pension Wise and the pensions strand of the Money Advice Service. The aim is to provide a one-stop service for savers in private pension schemes. A new money guidance body will replace the Money Advice Service
- to create greater and more suitable powers for TPR to use in regulating so-called "master trusts" which have seen significant growth in membership through auto-enrolment. A "master trust" is a trust-based scheme that is promoted to provide benefits to members on the staff of employers that are not connected with one another and where an employer does not have its own segregated section of the scheme. Concerns have been expressed about possible issues with the governance and long-term financial viability of some such schemes.
Lifetime Savings Bill 2016
The Lifetime Savings Bill outlined in the Queen's Speech will create the Lifetime ISA (LISA):
- It will provide savers with a bonus on savings for a first home, or retirement, or both.
- Workers receiving working tax credits or Universal Credit who save up to £50 a month will receive a government bonus of 50% (to a maximum of £600) after two years, and the same again after a further two years saving.
- For adults under age 40, the government will top-up saving to a LISA with a tax-free bonus of 25% on all savings up to £4,000 a year (so potentially an annual £1,000 bonus).
- LISA holders can access their funds without charge to buy their first home (worth up to £450,000), or from age 60.
Some say the LISA might undermine auto-enrolment or could foreshadow the end of a dedicated savings regime for pensions.
Finance Bill 2016
The pensions measures in the Finance Bill are either technical or relate to transitional protection from the reduced LTA.
Snags are ironed out in the definition of various authorised payments, including the serious ill-health lump sum, charity lump sum death benefit, dependant's flexi-access drawdown fund and trivial commutation lump sum.
Fixed and individual protection 2016 (FP and IP 2016) are created. They offer a form of transitional tax relief to those affected by the reduction in LTA from £1.25m to £1m from the start of the 2016/17 tax year. From July, an online system will be available to apply.
The replacement of the two-tier state pension by a single tier system has meant a new definition is required of the type of bridging pension that will count as an authorised payment. The Bill clears the way for this but at the time of writing no proposal has been made for the terms of the new definition.
On drawdown funds, a provision in the Bill extends the current inheritance tax (IHT) exemption so that a member's failure to exercise rights to draw all the designated funds from a drawdown pension fund or flexi-access drawdown fund before their death will not trigger an IHT charge.
The Bill is likely to be passed as an Act in autumn.