Updated: Govt publishes Finance Bill

The government has published the Spring Finance Bill 2023, delivering a number of pension tax changes announced at the recent Spring Budget.

In particular, the bill includes pensions tax changes designed to support doctors and other individuals to stay in work, as well as changes to extend the definition of collective money purchase (CMP) benefits.

The government previously announced plans to abolish the lifetime allowance (LTA) as part of the Spring Budget, alongside an increase in the annual allowance (AA), tapered allowance and money purchase annual allowance (MPAA).

Based on these changes, the Office for Budget Responsibility estimated that around 15,000 individuals will remain in the labour market as a result of the changes to the LTA and AA in particular, many of whom are expected to be highly-skilled workers, including senior doctors.

The bill therefore looks to deliver on these changes, having received its first reading in parliament on 21 March, and the majority of the measures set to come into effect for the financial year 2023-24.

In addition to these changes, the bill includes changes designed to make it clear that a CMP scheme, also known as a collective defined contribution (CDC) scheme, may pay periodic income during the winding up period.

It also enables a CMP scheme to transfer the sums and assets, used to pay periodic income during winding up, to another registered pension scheme so that a drawdown pension may be paid from the new scheme.

Finally, the clause ensures that any periodic income that (as a result of the death) becomes payable to dependants’ is ignored for the purposes of paragraph 16AA to 16B of Schedule 28 Finance Act 2004

Commenting on the news, Financial Secretary to the Treasury, Victoria Atkins, said: “This Finance Bill will drive forward our commitment to making the UK the best place to do business.

“It cuts corporation tax for businesses by £9bn a year and is expected to boost investment by 3 per cent helping grow the UK economy.”

Industry experts have focused in on the detail in the bill for further clarification on the changes, with AJ Bell head of policy development, Rachel Vahey, noting that whilst no-one will have to pay a LTA again from 6 April 2023, as expected, the bill also includes new rules for those who have previously protected a higher lifetime allowance and higher tax-free cash amount.

She explained: “Those with enhanced protection will be able to take advantage of the new higher AA, allowing them to top-up their pension without fear of a tax hit. But if their protection certificate shows a tax-free cash percentage, then this entitlement will be frozen on 5 April 2023.

“In effect, it means that none of the future growth in their pension pot, from both contributions and investment growth, can be withdrawn as tax free cash in the future.

“These changes still allow pension savers to super-charge their pension pots over the next few years. But this crucial rule freezes the amount they can withdraw tax-free, with HMRC preventing those with enhanced protection from completely exploiting the new regime.”

HMRC previously confirmed that members that hold LTA protections will be able to accrue new pension benefits, join new arrangements or transfer without losing these protections if they were applied for before 15 March 2023.

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