LONDON, 16 July 2020 – Aon plc, a leading global professional services firm providing a broad range of risk, retirement and health solutions, has said that guidance, published today by HMRC, may allow thousands of pension schemes impacted by the Lloyds ruling of October 2018 to resume paying lump sum benefits to members with small pensions.
Tom Yorath, partner and head of GMP Equalisation at Aon said:
“Today’s guidance from HMRC provides long awaited clarity on dealing with lump sum benefits. Since the Lloyds Judgment, many schemes have been afraid of triggering a host of adverse tax consequences by continuing to offer lump sum benefits to members with de minimis levels of pension. This guidance turns the taps back on and provides a pragmatic way forward, particularly for schemes where there is a strong demand from members to take small benefits as lump sums.
“Helpfully, HMRC has also come to the aid of schemes that paid lump sum benefits shortly after the judgment and who may have been concerned that they’d fallen foul of tax rules. HMRC has said that the date that matters to them for tax purposes, is the date that schemes choose the method of equalising benefits for their members.
“In my experience, this isn’t clear cut for many schemes, as they may be taking different decisions for different populations at different times. Schemes will need to work with their advisers to see whether they have gone past this date or not.”
Tom Yorath continued:
“Some practical challenges remain for members who took a trivial commutation lump sum, as benefits need to be considered across all schemes. Trustees paying top-ups to these members may find that this pushes the member over triviality thresholds. This would mean the member should never have received a lump sum in the first place.
“Working through this is likely to be a big challenge, as trustees and administrators may not now have access to information about members’ benefits held in other schemes.”
Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.
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