Pensions

The Government will soon announce greater flexibility on accessing surpluses in defined benefit (DB) pension schemes, with a view to helping economic growth through investment in the employer's business and in the wider economy. No detail has been given, yet, but the key points are:

• Restrictions will be lifted on how "well-funded" schemes that are "performing well" will be able to invest their surplus funds - "in the wider economy, fuelling economic growth".
  
  
• It will be easier to amend scheme rules to allow surplus extraction, with trustees and employers striking a deal on sharing surplus between the employer and members.

As part of its economic growth agenda, the Government wants to see defined contribution master trusts and group personal pension providers consolidate into 'megafunds' by 2030 (though possibly with a period of phasing-in). There are currently around 30 master trusts and 30 group personal pension providers in the workplace pensions market. The Government believes that consolidating these into around 24 such arrangements in total, each being at least £25 to £50 billion in size, will naturally lead to greater investment in infrastructure, private equity and other drivers of economic growth. The consolidation would be brought about by imposing a minimum asset value for the default arrangements and a maximum number of such arrangements. Employers' private schemes are not in scope but will become subject to a new 'value for money' assessment and reporting requirements that are also aimed at increasing consolidation.

Inheritance tax (IHT) is to be applied to "most unused pension funds and death benefits". It will bring these into a person’s estate for IHT purposes from 6 April 2027, though the spouse/civil partner exemption will continue to apply. This would effectively remove the distinction between the IHT treatment of funds paid out under a binding nomination (which is already subject to IHT), and those paid out to a beneficiary chosen at the trustees' or managers' discretion after considering a non-binding nomination (which legitimately avoids IHT).

This is intended to stop those who can afford it from using pensions as a vehicle for passing on assets to children or grandchildren free of the 40% IHT charge that would apply if the assets were in their estate. This will, however, affect many more people (or rather their survivors) than those who do that, in particular unmarried people.

Some DB lump sum death benefits will also be in scope but there is currently little clarity on this, and it may depend on how the benefits are set up (for example, whether they are provided under a registered pension scheme and whether they are insured).