Personal Pension  

Changes to serious ill health pension freedoms welcomed

Changes to serious ill health pension freedoms welcomed

Advisers have welcomed the changes to the pensions freedom and choice agenda announced today as as “sensible tidying up exercise.”

It was announced in today’s Budget (16 March) that changes are being made to the pensions tax rules less than a year after the introduction of pension flexibility in April 2015.

In a HM Revenue & Customs document published alongside the Budget today (16 March) the requirement that a serious ill-health lump sum can only be paid from an arrangement that has never been accessed has been ditched.

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The 45 per cent tax charge on serious ill-health lump sums paid to individuals who have reached age 75 will also be replaced with tax at the individual’s marginal rate, according to the HMRC document.

Scott Gallacher, director of Leicester-based IFA Rowley Turton said: “It seemed to be a tidying up exercise. Replacing 45 per cent tax charge with the marginal rate seems logical.

“Most of that seemed to be a tidying up exercise and seemed sensible.”

Paul Lindfield, director at Manchester-based Sedulo Wealth Management echoed that sentiment.

“It’s catching up with esoteric rules. There’s no major policy shift or change here.”

Claire Trott, head of pensions technical at Talbot and Muir added a number of amendments that will come in from the day after Royal Assent of the Finance Bill 2016, will clear up some anomalies “that crept in during the pension freedoms”.

It will mean that those who wish to access their pension when they meet the serious ill health requirements, will be taxed in the same way as their beneficiaries would have been on their death.

“Any kind of simplification when you are looking at death or those in ill health should be welcomed because it is already such a difficult time for the member and/or their family,” said Ms Trott.

“In addition, the ability to leave a tax free lump sum to a charity on death, before age 75, was something that was lost in the last round of death benefit changes and I am sure many charities will welcome this being reinstated.”

Claire Walsh, chartered financial planner at Aspect 8 said that the changes to pension freedoms were making them fairer for all.

“Now it is more in line with if someone dies, do it’s making it a lot fairer - it is more in line with what is in place for normal death benefits.”

Dan Farrow, director at Chelmsford-based SBN Wealth Management said the “positive” changes were probably a result of HMRC intervention that they simplified the treatment of funds on death.

“The changes bought in around flexible benefits and the treatment of pension funds on death are now fit for purpose and so these changes are to be welcomed,” he said.

Rob Lewis, director at Flintshire-based Heritage Financial Solutions said: “In regards to the pension amendments I think its a really positive and sensible move by the government.