HM Revenue & Customs (HMRC) has ditched changes to dealing with pension death payments that it instigated following the recent scrapping of the lifetime allowance (LTA).
In its LTA guidance newsletter, issued shortly after the Spring Budget, HMRC said that lump sum payments from pensions on death, that would have been subject to an LTA excess charge, would now attract an income tax charge at the recipient’s marginal rate instead.
It also advised that pension providers would need to contact the legal personal representative (LPR) of the deceased member before paying out pension death benefits, to find out how much LTA the member has. The provider would also have to let them know the type and amount of benefit it would be paying out. The LPR would then be required to tell the provider how much of the payment would be subject to income tax.
Financial services giant Quilter expressed concerns that this move could cause delays to pension payments on death to beneficiaries, as the scheme would have to wait for the LPR to confirm the LTA position before funds could be released.
It also highlighted that LPRs are unlikely to have pensions technical knowledge and may need further advice, at a time when they are vulnerable. In the pre-Budget process, a pension provider pays out pension death benefits without reference to the LTA tax charge.
Backtracking
HMRC has now decided to retrace its steps, as a spokesperson explained: “We have listened to the concerns expressed by pension providers. Having spoken with the industry, we have decided to maintain the current process for dealing with death benefits.
“This will continue until we have worked through the longer-term position for the full abolition of the lifetime allowance from 6 April 2024.”
Jon Greer, head of retirement policy at Quilter, said: “We felt that there was a possibility of these changes causing significant delays so it is commendable that HMRC has listened to industry concerns and will maintain the current process up until we have clearer idea of how this process will work in the long term after the lifetime allowance is completely abolished.”
