01 DEC 2023

Technical Newsletter - December 2023

Issue 2 - December 2023

 

AUTUMN STATEMENT

The Chancellor Jeremy Hunt delivered his autumn statement on November 22nd. The headline piece in the UK media was the retention of the “triple lock” for the UK state pension. This came as no surprise to most commentators, because controversial as it is in some quarters, no political party in power will be wanting to penalise, so close to a General Election, the age group which tends to be the most active in voting! This means that pensioners can look forward to an increase of 8.5% in April 2024 at a time when inflation is expected to have continued its fall from the current level of 4.6%.

Another pension related announcement was the Chancellor’s idea of a “pot for life”. A call for evidence is to be launched around the issue of small pot pensions, confirming that the Chancellor is looking into a lifetime provider model which would allow individuals to have contributions paid into their own existing pension scheme when they change employer, rather than being enrolled into the employer’s chosen qualifying workplace pension scheme.

The Government intends to also introduce a multiple default consolidator model to enable a small number of authorised schemes to act as a consolidator for eligible small pension pots worth less than £1,000. Whilst the idea is fine in theory, it is to be seen how it could work in practice.

Moving to pension technical specific matters, the statement clarified that the Government has abandoned its plan to tax death benefits payable under the age of 75 in non-lump sum form. This will be welcome news to those who want to receive death benefits in the form of dependent or nominee drawdown pensions, rather than lump sums. We already know that lump sum death benefits payable within 2 years of notification of death to those under 75 will be tax-free up to the old life-time allowance level of £1,073,100 (or higher where transitional protection exists). The balance above this level is taxed at the recipient’s marginal rate.

 

STRUCTURED NOTES

The piece in our last Technical newsletter prompted some queries from advisers about the type of notes which can be accepted. Just to clarify, notes held within an IFGL SIPP either directly, or via a bond, must be of a type which is marketable to UK retail customers. There are no such restrictions where the note is just held in a bond (outside a pension wrapper). We cannot accept structured notes which are designed for professional/high net worth investors only in our SIPPs.

 

NEW STATUTORY MONEY PURCHASE ILLUSTRATIONS

From 1 October 2023 the new SMPI rules on how we estimate pension fund value and income in retirement for annual benefits, came into force. Annual statements now include the new ASTM1 projected pension fund and income values.

The projected growth rates we use are now based on the volatility rating of the individual funds held within a pension plan. This means that low risk funds will use a low projected growth rate and higher risk funds, a higher projected growth rate.

To be clear, this is simply a change to how we calculate projected returns. It will not impact the actual fund value, unit holdings or performance of your client’s SIPP.

 

CASH WARNING LETTERS

Most advisers will be familiar with Investment Pathways, which in 2021 introduced the requirement for SIPP providers to issue a warning letter to members who hold significant cash or cash-like holdings. These letters however, only applied to members who had designated funds to drawdown, in other words, the over 55s.

One outcome from the FCA’s recent investigation into improving outcomes in non-workplace pensions (Policy Statement 22/15), is that this initiative is being extended to pension pots in the “accumulation phase”.

What this means in practice is that we are now required to send a cash warning letter to all members who with active pensions (currently up to the age of 50), where there are significant cash or cash-like investments being held. This is likely to impact a larger proportion of clients, because the limit for the percentage of the overall holding held in these cash or cash like investments is being reduced from 50% to 25% for members in the accumulation phase. We are also required to carry out a review once a quarter.

Another tweak is that these new letters are required for advised clients as well as non-advised clients and only those using Discretionary Fund Managers will be exempt, as the assumption is that the holdings are actively managed.

This new initiative came into force on 1 December 2023, but providers have three months in which to conduct the first review and are not then required to issue a cash warning letter until a further two reviews confirm that the significant portion of cash or cash-like investments is still held. Advisers are therefore not likely to receive enquiries from members receiving these cash warning letters for the first time, until later in 2024.

 

MERRY CHRISTMAS AND A HAPPY NEW YEAR

We wish all our advisers a happy festive period and a prosperous and healthy 2024! 

 

IMPORTANT NOTE IFGL Pensions cannot accept any responsibility for any action taken or refrained from being taken as a result of this information.