30.The Government announced at Budget 2014 proposals to allow people aged 55 and above, from April 2015, to access their money purchase pension savings as they wish. These reforms mean that individuals with money purchase savings will be able to access their entire pension fund as they wish after age 55. This will allow individuals to make their own choices about how to use their pension savings.
31.As an interim measure a number of changes were made to the existing pension tax rules, to extend the circumstances in which an authorised member payment could be made. These changes were enacted in the Finance Act 2014, had effect from 27 March 2014 and amended Finance Act 2004 to:
increase the maximum income that a drawdown pensioner (member or dependant) with a capped drawdown pension fund can choose to receive up to 150 per cent of the “basis amount”;
reduce the minimum income threshold for flexible drawdown to £12,000;
allow members aged 60 or over, with total pension savings of £30,000 or less, to take out all of those savings as one or more trivial commutation lump sums;
increase the small pots limit to £10,000; and
increase to 3 the number of small pot lump sums that can be taken under non-occupational pensions.
32.A consultation document “Freedom and choice in pensions” published on 19 March 2014 set out the Government’s proposals for reform and invited comments from a range of stakeholders on the changes announced at Budget 2014. A summary of responses to the consultation was published on 21 July 2014.
33.The summary of responses set out that the Government would take forward two separate pieces of legislation during the autumn of 2014 to deliver the changes: the Pension Schemes Bill and the Taxation of Pensions Bill.
34.The Pension Schemes Bill was designed to deliver the regulatory framework for defined ambition pension schemes, and included provisions to enact the guidance guarantee and the restrictions on transfers from unfunded public service defined benefit schemes. It also included changes to pensions legislation to ensure that individuals could access their pension savings flexibly.
35.A draft of the Taxation of Pensions Bill was published on 6 August 2014 for a four week technical consultation, to ensure that the legislation would enact the policy as intended. In total, 45 written responses were received.
36.The Government announced on 29 September 2014 that, from 6 April 2015, the tax charge on certain death benefits would be reduced.
37.The Taxation of Pensions Bill introduced into the House of Commons on 14 October 2014 had a number of changes either:
as a consequence of consultation responses as well as making a number of technical improvements; or
to introduce new provisions on tax charges on death, international pensions and reporting requirements.
38.Amendments were made to the Bill during its committee and Report stages in the House of Commons. The amendments introduced during the Commons committee stage made changes so that any individual, not just a dependant, can inherit unused drawdown funds or uncrystallised funds on the death of the member where those funds are then used to provide a drawdown pension or pay a lump sum death benefit. Where the death of the member occurred before age 75, the changes enable any payments of income withdrawal to the beneficiary to be made tax-free providing the funds are designated to the beneficiary’s drawdown fund within a two-year period and that the member had sufficient lifetime allowance available at the time of their death.
39.Amendments were also made to ensure that the equivalent of income withdrawal paid from a non-UK pension scheme will get similar tax treatment.
40.Further amendments were made at the Commons Report stage so that the reporting arrangements introduced by the Act in respect of the money purchase annual allowance apply only to active members of pension schemes.