Other April 2015 FAQs

Here's some questions that have been regularly asked since the pension flexibility changes were introduced on 6 April 2015. These FAQ are for financial advisers only. They mustn’t be distributed to, or relied on by, customers. They are based on our understanding of current legislation, which may change.

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The exact wording of each existing earmarking order will be crucial in determining the effect of taking one of the new benefit types available as a result of pension flexibility.

If an earmarking order requires a percentage of the income (in England and Wales) to be paid to the former spouse or civil partner when benefits are taken, it may be that interpretation of the exact wording of the order would lead the person responsible for the pension arrangement (PRPA), given responsibility to comply with the court order, to believe it applies to any income payable, whether by annuity or via flexi-access drawdown.

The same may apply to any earmarking orders made on lump sums when benefits are taken. Any such order would continue to apply to any pension commencement lump sum taken, but depending on the exact wording used the PRPA may believe it also applies to any uncrystallised funds pension lump sum (UFPLS) or small pots lump sum paid.

Given the court places an obligation for compliance with the earmarking order on the PRPA, it is very likely that the PRPA will seek clarification of any ambiguous wording in advance before any benefits are settled and the order followed. 

The PRPA is also under an obligation to notify a former spouse or civil partner if the member has made a transfer to another scheme, informing the receiving scheme of the existence of the order and supplying a copy of it. Further, the PRPA must tell the former spouse/civil partner if an event occurs that is likely to result in a significant reduction in benefits, providing the reason for the reduction. This would allow the former spouse or civil partner to apply to the court for a variation of the existing order if necessary. 

The client may be able to fully encash their benefits if their existing scheme is willing to offer this benefit option (the scheme is not obliged to offer it). If not, the client may wish to consider transferring to another registered pension scheme that does offer this flexibility (or even to a qualifying recognised overseas pension scheme, if appropriate). Many UK providers may lack the necessary authorities to sell to non-UK residents.

Those taking benefits from a UK registered scheme whilst permanently living overseas may, if there is a double taxation agreement in place between the UK and the country in which the client is resident, be able to arrange for the benefits to be paid gross in the UK and taxed in the country of residence to avoid double taxation. Information on existing UK double taxation agreements can be found here(Opens new window).

For those clients who are only temporarily non-UK resident there are special rules. If the client:

  • was UK resident for at least four of the seven tax years before their year of departure from the UK, and
  • returns to the UK and becomes resident again for tax purposes within five tax years of the year of their departure from UK, and
  • made relevant withdrawals during their period of non-residence totalling more than £100,000,

they may be taxed in the UK on any flexible benefits taken as though they had accrued in the first year the client became resident again for UK tax purposes. 

Anyone who wants to transfer ‘safeguarded benefits’ valued at more than £30,000 on the valuation date in order to flexibly access those benefits, must take advice from an adviser with the relevant permission to advise on transfers. Safeguarded benefits include:

  • defined benefits, including GMP,
  • policies with a guaranteed annuity rate (GAR), and
  • occupational pension schemes where the Trustees have made a promise directly to the members about the amount or rate of pension payable.

Pension providers are required to check that this advice has been sought and given, but are not required to check what the advice was. This means that an adviser may advise against a transfer, but it can still proceed, so long as advice has been given.

Yes – the rules allow flexi-access drawdown, uncrystallised funds pension lump sums and small pots to be taken from any age, if the member meets the ill-health conditions. A member may take benefits at any age where they are, and will continue to be, medically incapable of carrying on with their current occupation, because of injury, sickness, disease, or disability.  A registered medical practitioner must provide the scheme administrator with written evidence of ill health and the member must actually have stopped working in his or her own occupation.

Scheme rules may have a stricter definition of ill health and may insist that the client is unable to continue with ‘any’ occupation as opposed to their ‘own’ occupation before they will pay pension benefits early.