Section 51: Bridging Pensions
Summary
1.Section 51 enables a registered pension scheme to continue to pay a bridging pension until a member’s state pension age. Previously, a bridging pension had to be reduced by age 65.
Details of the Section
2.Subsection (1) explains that the section is amending the provisions of Finance Act (FA) 2004.
3.Subsection (2) amends paragraph 2 of Schedule 28 to FA 2004 to provide that the age at which a bridging pension must be reduced is 65 or, if later, state retirement age (referred to as “pensionable age”, which is defined in section 279(1) of FA 2004). It also ensures that if multiple reductions take place, those reductions when aggregated must not exceed the maximum reduction allowed.
4.Subsection (3) amends paragraph 1 of Schedule 29 to FA 2004 to remove the reference to age 65 from the description of an excluded pension commencement lump sum. This reflects the amendments made by subsection (2) and means that bridging pensions which reduce after the age of 65 will not be excluded lump sums as a result and will not be subject to unauthorised payments tax charges.
5.Subsection (4) repeals paragraph 21 of Schedule 23 to FA 2006, which inserted the wording omitted by subsection (3).
6.Subsection (5) brings the section into force for the tax year 2013-14 and subsequent tax years.
Background
7.A pension from a registered pension scheme is not normally allowed to be reduced when in payment.
8.There are some exceptions to this rule, one of which is where a ‘bridging pension’ is being paid.
9.A ‘bridging pension’ is the term used to describe a pension that is higher at the outset and then reduced at the age at which the individual can claim for the state pension.
10.If a pension is reduced at any time other than when permitted under paragraph 2(4) Schedule 28 FA 2004, all future payments of that pension are unauthorised payments and subject to the unauthorised payments tax charges.
11.The existing legislation meant that the bridging pension had to be reduced by the age of 65. However, changes to the age at which state pension is paid meant that this reduction might occur before the member could receive their state pension.
12.The changes made by this section will mean that pension schemes can continue to pay a bridging pension up to a member’s state pension age without incurring unauthorised payments tax charges. The legislation will remain in line with the policy intention.
13.The Government announced at Budget 2012 that changes would be introduced with effect from 6 April 2013 to align tax rules with changes to state pension age being introduced by the Department for Work and Pensions.
