New Pension Measures Proposed
10 August 2021
Original content provided by BDO United Kingdom
On 20 July 2021, the government published Draft Finance Bill 2022 clauses that included two pensions-related measures that will affect individuals. The first measure proposes an increase to the normal minimum pension age from 55 to 57 from 6 April 2028 onwards. The second measure makes technical changes to the existing "scheme pays" mechanism for paying an annual allowance charge.
Increase to the Normal Minimum Pensions Age
Currently the normal minimum pension age (NMPA) in a registered pension scheme is set at 55 for individuals (who do not have a protected pension age of 50). The NMPA is the age when most pension savers can access their pension benefits without getting an “unauthorised payments” tax charge unless they are retiring early due to ill-health.
The new rules propose a rise to the NMPA from 55 to 57 from 6 April 2028 onwards. The increase in NMPA will not apply to members of the armed forces, police and fire service pension schemes.
Changes to the “Scheme Pays” mechanism
The ‘scheme pays’ mechanism is available for a member of a registered pension scheme who incurs an annual allowance charge of £2,000 or more if their pension input exceeds the pensions annual allowance (currently £40,000 or lower for high earners). In such cases the member may give notice to their scheme administrator to pay the annual allowance charge on their behalf, in return for an actuarial equivalent reduction in the future value of their pension pot.
The new rules propose changes to the reporting and payment deadlines where a member of a registered pension scheme has incurred an annual allowance charge when using the scheme pays mechanism. These changes will have effect from 6 April 2022, but will be applied retrospectively from 6 April 2016.
The proposed rules will extend the time limit by when a member of a registered pension scheme must give notice to their scheme administrator to use scheme pays. The new rules allow a member to give notice by the earlier of:
- The end of the three-month period beginning with the day on which the scheme administrator gives them information about the annual allowance charge; or
- The end of the six-year period beginning with the end of the tax year in question.
The deadline has previously been 31 July after the year anniversary of the tax year in which the charge occurs (e.g. 31 July 2021 for the 2019/20 tax year)
The proposed rules also extend the deadline for when the scheme administrator must report and pay the annual allowance charge. The new deadline for paying the charge will relate to when the scheme administrator is notified of the charge, rather than the existing deadline which is a fixed date of 31 December in the year following the end of the tax year in which the charge arises.
Your next steps
For help and advice on these new proposed measures and on all areas of pensions tax, please speak to your usual BDO adviser, or contact Fiona Hall.