Overview

This bill, the Taxation of Pensions Bill, makes various changes to the taxation of pensions in the UK, primarily focused on increasing flexibility for accessing pension funds and altering tax charges on lump sums and annual allowances. It introduces a new "flexi-access drawdown" system, modifies tax rates on certain lump sum payments, and adjusts the annual allowance charge calculations.

Description

The bill significantly alters pension access and taxation rules. Key changes include:

Pension Flexibility

• Flexi-access drawdown: Introduces a new system allowing more flexible access to drawdown pension funds, removing the annual cap on withdrawals for certain funds (flexi-access drawdown funds).
• Annuities: Removes certain restrictions on annuities purchased on or after April 6th, 2015.
• One-off pension payments: Allows one-off pension payments outside of drawdown funds.

Tax Charges

• Lump sum death benefits: Reduces the tax charge on special lump sum death benefits from 55% to 45%, applicable to lump sums paid on or after April 6th, 2015. This also applies to lump sums paid due to serious ill health.
• Annual Allowances: Alters the calculation of the annual allowance charge, particularly for individuals who have flexibly accessed their pension rights. A new system is introduced with a £10,000 threshold for money purchase inputs. The annual allowance charge will be based on a "chargeable amount," determined by either a default or alternative calculation, depending on the circumstances.

Death Benefits

• Nominees and Successors: Allows drawdown benefits to be paid to nominees and successors of deceased scheme members, subject to specific rules and tax implications.
• Uncrystallised funds at death: Introduces new rules concerning uncrystallised pension funds upon the death of a member, including tax implications for beneficiaries.

Overseas Pensions

• Extends certain UK tax provisions to relevant overseas pension schemes.

Government Spending

The bill's impact on government spending is not explicitly stated in the provided text. The changes to tax rates and allowance calculations could lead to either increased or decreased tax revenue, depending on individual pension holder behaviour.

Groups Affected

• Pension holders: Increased flexibility in accessing pension funds, but also potential for increased tax liabilities depending on withdrawal strategies and income levels.
• Pension scheme administrators: Required to comply with new administrative procedures and reporting requirements.
• Nominees and successors of deceased members: New rights to access pension funds, but also new tax liabilities.
• HM Revenue & Customs (HMRC): Responsible for implementing the new tax rules and collecting resulting tax revenue.
• Insurance companies: Will be affected by the changes to annuity rules and reporting requirements.

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