A worrying trend is developing within pension legislation, following the unexpected ascension of a majority Conservative Government in this year’s General Election; namely the time it takes for the legislation underpinning Government pension policy to attain Royal Assent.
For example, the Finance (No. 2) Bill 2015 commenced its passage through Parliament back in July 2015, but only received Royal Assent on 18 November.
This Bill included legislation relating to the forthcoming tapering of the Annual Allowance and the transitional amendments to Pension Input Periods.
Prior to it receiving Royal Assent, Advisers and Providers had to caveat their advice and guidance for their clients, as it was based on draft legislation that was theoretically subject to change.
This created a frustrating situation for all parties, as actions may have been delayed through a fear of doing something that ultimately became ‘illegal’.
Worryingly, we are now facing an identical situation with regards to Fixed Protection 2016 (FP2016) and Individual Protection 2016 (IP2016) and the passage of the Finance Bill 2016 through Parliament.
The draft clauses to be included in Finance Bill 2016 (the Bill) will be published on 9 December 2015.
The Bill will then work its way through five House of Commons stages and five House of Lords stages, and should receive Royal Assent in July 2016.
This would be fine, provided that any changes to pensions took effect from a date after Royal Assent, as individuals would then be basing important decisions on ‘known law’.
"The optimum position for all concerned, where changes to pensions legislation are involved, is for that legislation to be already on the statute books ahead of financial planning discussions taking place - and decisions made - based on a ‘foundation of certainty’"
However, with the further reduction in the Lifetime Allowance to £1 million, with effect from 6 April 2016, the Bill will include provision for two new protection regimes; namely FP2016 and IP2016.
In their October 2015 'Pension Schemes Newsletter', HMRC state;
“…individuals will need to apply for protection before they take their benefits as they will need the HMRC reference number if they want to rely on the protection…those wanting to rely on IP2016 or FP2016 should apply before they take any benefits on or after 6 April 2016.”
What renders the above statement ridiculous is that HMRC then go on to say (my emphasis in bold);
“We are introducing a new online self-service for…members to apply for protection and this service will be available…to use from July 2016.” (i.e. not until the Finance Bill 2016 has received Royal Assent!)
Therefore, individuals wanting to apply for FP2016 will need to remember to cease all contributions to their pension arrangements on or before 5 April 2016, even though they will not be able to physically apply for it via the online self-service until nearly four months later.
And what about those individuals who want - or need - to take their benefits between April and July 2016?
As part of an interim process, they will have to write to HMRC requesting either FP2016 or IP2016, and then wait for HMRC’s written response before they can show it to the Scheme Administrator(s) of the pension arrangement(s) that they are wanting to take benefits from.
The optimum position for all concerned, where changes to pensions legislation are involved, is for that legislation to be already on the statute books ahead of financial planning discussions taking place - and decisions made - based on a ‘foundation of certainty’.
Instead, a freshly-unencumbered Conservative Party have steamed ahead on their austerity course, whilst the protracted legislative process of converting a Bill into an Act struggles to catch-up in their wake.
Where FP2016 and IP2016 are concerned, this ‘back-to-front’ approach increases the risk of not being able to obtain the required protection – or obtain it on time - and only serves to increase frustration amongst Providers, Advisers, and their clients.
What a drag!
Blog first published on SIPPs Professional website
PS: Individual Protection 2014 is still available
Don’t forget that, where possible, you can still apply for Individual Protection 2014 (IP14), up until 5 April 2017.
IP14 seeks to protect any pension savings built up before 6 April 2014 from a Lifetime Allowance tax charge (subject to an overall maximum of £1.5 million).
Unlike Fixed Protection, however, IP14 still allows an individual to continue to make pension contributions on and after 6 April 2014, although cannot guarantee full exemption from a future Lifetime Allowance tax charge, as a result.
Applications for IP14 can be made to HMRC online and there is an online tool on their website to help individuals decide whether they are eligible to apply for IP2014, which can be found at Lifetime Allowance Checking Tool.