HM Revenue & Customs (HMRC) has confirmed it is considering tax issues which arose from the recent Lloyd’s Bank court case and could result in additional tax bills for savers.
In October, the High Court ruled that trustees of the Lloyds pension scheme must equalise benefits between women and men who have guaranteed minimum pensions (GMPs) because of contracted out benefits.
The ruling was considered a solution for a pension problem spanning almost three decades, and defined benefit (DB) schemes are now having to decide how to equalise the contracted out benefits of their members.
One of the solutions is converting the GMPs into a normal scheme benefit. But the problem with this, from a member's perspective, is that it will likely uplift the value of their pension, which could trigger an annual or lifetime allowance tax charge.
In its monthly pension scheme newsletter, published last week, HMRC stated it was considering the pension tax issues arising from the court case and added it would give more information and advice on this through its pension scheme newsletters in the coming months.
According to David Everett, partner at consultancy firm LCP, there are many tax traps that can be set off by schemes as they respond to the Lloyds judgment – both in terms of ‘business as usual’ benefit processing and when they come to implement inequality resolution solutions.
He said: "So, it is good to hear that HMRC is 'on the case'. However, there is much to be done as this codified regime simply did not envisage such a situation from ever arising."
Sir Steve Webb, former pensions minister and director of policy at Royal London, added it was "vitally important that HMRC gives clarity to taxpayers".
He said: "Someone could face an unexpected tax charge as a result of GMP equalisation at any point.
"The authorities have been aware of this issue for at least a couple of months, and it is time they provided certainty as to how they are going to handle this situation."