So Long Buddy
Almost as exciting as England finally winning a Test match are the wholesale changes to pension legislation being introduced in 2015. I think we would all agree that the flexibility brought about by the new rules is certainly welcome and as always, clients receiving quality financial planning advice will be best placed to maximise this flexibility.
At the same time it would be wrong to assume that no action is necessary until 2015 and the recently published HMRC Guidance (Pension Flexibility: Transitional issues associated with the pension changes that came into force on 27th March 2014) throws up one interesting quirk.
Client with PCLS entitlement in excess of 25% via scheme specific protection in an occupational scheme.
In order to transfer and safeguard the scheme specific protection the clients would have had to either:
a) Receive the PCLS, enter capped drawdown and transfer to another capped drawdown arrangement, or
b) Transfer prior to vesting as part of a block/buddy transfer.
The difficulty, even if your client is lucky enough to have a buddy, has been that the legal structure of a number of schemes (particularly section 32 arrangements) makes a buddy transfer impossible and at the same time the rules of such Schemes may not permit a drawdown to drawdown transfer.
The issue of buddy transfers has been addressed as the HMRC guidance document has extended the definition of a block transfer as follows:
- There must be a transfer of all the sums and assets that represent the member's rights under the scheme
- The transfer must be made as a single transaction
- The transfer must take place on or after 19 March 2014 and before 6 April 2015
- The member must become entitled to all their rights under the receiving scheme on the same date and that date must be before 6 October 2015 - this means that the member must crystallise not only all of the transferred funds but also any other rights they may have under the receiving scheme on the same date.
So in practical terms clients would have the option to transfer all uncrystallised benefits; on the basis that full vesting of benefits happens prior to 6th October 2015. No buddy is needed in order to make this happen, and the protected PCLS can be taken in the new scheme.
OK somewhat techy, and not quite as exciting as an England victory, but something that may be helpful to your clients now in advance of April 2015.