Pensions tax: bridging pensions
Updated 25 October 2016
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Who is likely to be affected
Individuals receiving, or with a right to receive, a bridging pension from a registered pension scheme and their pension scheme administrators. A bridging pension is a higher level of scheme pension that may be paid between the date the member retires until the date the member reaches state pension age.
General description of the measure
This measure is intended to ensure that the existing circumstances when a scheme pension can be reduced following the payment of a bridging pension are maintained following changes to the state pension.
Policy objective
This measure supports the government’s objective of promoting fairness in the tax system by ensuring that pension schemes can continue to pay bridging pensions following the introduction of a single tier state pension.
Background to the measure
The Pensions Act 2014 introduces a single tier state pension from 6 April 2016. Tax legislation changes are consequential to these changes.
Detailed proposal
Operative date
This measure will have effect in relation to reductions in scheme pensions made on or after 6 April 2016.
Current law
The current pensions tax rules for registered pension schemes came into force on 6 April 2006 and are set out in Part 4 of the Finance Act (FA) 2004.
Paragraph 2 of Schedule 28 FA 2004 sets out when a pension payable to a member is a scheme pension. One of the conditions to be a scheme pension is that the pension must not decrease except in prescribed circumstances.
Paragraph (2)(4)(c) allows the pension to reduce not earlier than when the member reaches state pension age, by an amount that does not exceed the relevant state pension rate. This allows the scheme to pay a higher scheme pension at the outset and reduce it when the member starts to receive the state pension. This is known as a bridging pension.
Proposed revisions
Legislation will be introduced in Finance Bill 2016 to remove Paragraph 2(4)(c), along with the provisions which relate or refer to it. New regulations will be introduced under paragraph 2(4)(h) for 2016 to 2017 and subsequent tax years to align pensions tax legislation with the Pensions Act 2014. This will allow the payment of bridging pensions to continue as at present.
Summary of impacts
Exchequer impact (£m)
| 2015 to 2016 | 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
|---|---|---|---|---|---|
| - | negligible | negligible | negligible | negligible | negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
The measure is not expected to impact on family formation, stability or breakdown.
There is no impact on individuals and households as the measure maintains the status quo in allowing bridging pensions to be paid up until state pension age.
Equalities impacts
There are no particular impacts on people with protected characteristics.
Impact on business including civil society organisations
This measure is expected to have no impact on businesses or civil society organisations. Occupational pension scheme administrators will not be required to provide any additional information to HM Revenue and Customs (HMRC) as a result of this measure.
Operational impact (£m) (HMRC or other)
It is not anticipated that implementing this change will incur any additional costs or savings for HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact Karen Bishop on Telephone: 03000 562533 or email: pensions.policy@hmrc.gsi.gov.uk.