Autumn Statement: The pension changes

The Government also announced that:

• Where a member of a registered pension scheme dies before reaching age 75:
  • The existing income tax exemption (for funds within the lifetime allowance) for any subsequent lump sum payment from the scheme to the deceased member’s beneficiaries will continue to be available. (A number of commentators had previously suggested that this exemption was to be removed); and
  • The existing income tax exemption is also to be preserved for any subsequent ‘income withdrawal’ pension payments from the scheme to the deceased member’s surviving spouse, children or dependants. This potentially enables even large defined contribution pension funds to be paid out on a completely tax-free basis – as pension, unlike lump sum, payments are not subject to lifetime allowance testing and, since April 2023, any ‘lifetime allowance excess’ when the scheme funds are designated for the purpose of making future pension payments, has no longer been subject to a tax charge. It remains to be seen whether the Government will look to restrict this exemption in some way;
• Transfers from registered pension schemes to qualifying recognised overseas pension schemes (which can currently be made completely free of UK tax provided certain conditions are satisfied, irrespective of the amount transferred) will in future be subject to the 25 percent ‘overseas transfer charge’ on any ‘lifetime allowance excess’ (which essentially reverts to the pre-April 2023 position);
• The UK tax treatment of distributions from qualifying recognised overseas pension schemes/non-UK pension plans to which UK tax-relieved contributions have previously been made is to be amended – the Government appears to intend that any ‘lifetime allowance excess’ will no longer be capable of triggering penal UK tax charges (as is currently the case in certain circumstances); and
• The tax charge arising on authorised surplus payments to sponsoring employers of a registered pension scheme is to be reduced from 35 percent to 25 percent.

In addition, also in the pensions area, the Government announced:

• The ‘triple-lock’ guarantee for the state pension will be maintained;
• Workers will receive the right to nominate the pension pot to which their employer contributes – a so-called ‘pot for life’.  A call for evidence will explore this proposal in more detail; and
• All occupational pension scheme trustees are to be required to offer an appropriate ‘decumulation’ service at the point members access benefits.

KPMG in the UK’s pension tax specialists can support you with any queries or concerns that you may have. Please contact the authors of this article, or your usual KPMG contact, to discuss further.