The simple basis for these changes is the ability to take your pension fund as income after age 55 in whatever form and amounts that you require with no restrictions. The other changes are to the taxation of death benefits.
The statement above covers the headline changes; however, there are many other impacts these legislative changes will have. For example, there will be changes to the operation of small pots and triviality payments under the new legislation. These are outlined below.
This article is a summary of the general position only and not in depth and should be read in conjunction with other articles published.
The majority of small pots legislation came into force from April 2014.
- The maximum value of a small pot is £10,000 (increased from £2,000). This value is at the date of payment.
- Small pots legislation can be used for three individual small pots.
- A “pot” is represented at arrangement level and not scheme or policy level – so one arrangement represents one small pot.
- The member must be over the age of 60 before they can apply for these payments.
- These payments do not get tested or count towards the member’s Lifetime Allowance and so are not Benefit Crystallisation Events.
- Small pots can be taken from crystallised and uncrystallised funds.
- 25% of the small pot payment represents tax free cash (if available) and the residual funds are taxed as income. Obviously all crystallised funds are taxed.
- Taking the small pots must extinguish all the member’s rights under that arrangement.
- These rules will generally remain in force unchanged after April 2015 with one exception.
- Small pots will be available from age 55.
Triviality rules were amended from April 2014 to increase the amount which could be taken under these rules from £18,000 to £30,000.
- The member would need to take the value of all their pensions into consideration.
- They will need to consider both uncrystallised and crystallised pensions.
- The total combined fund values on a nominated date need to be at or below £30,000 – but could be higher at the date of actual payment.
- The nominated date can be up to three months before the first trivial payment.
- All benefits have to be paid within 12 months of the nominated date. If not taken in this time frame they will not be able to use the triviality rules.
- The triviality rules can only be used once for a member’s benefits in their lifetime.
- The member must be aged at least 60
- The member must have available Lifetime Allowance.
- The payment must extinguish all rights under the scheme.
- From 6 April 2015 the further changes are as follows.
- Triviality will only be available from money purchase schemes that are in payment (those not in payment can be covered by the small pots legislation
- Triviality will however still be available from final salary schemes – and these would then take into consideration all money purchase schemes.
- The age for triviality will reduce to age 55.