Summary Drawdown, conversion of benefits and lump sums
10.The Taxation of Pensions Act 2014 makes changes to allow new forms of ‘authorised payments’ for tax purposes, the circumstances under which funds that may be designated as drawdown funds can be extended and the payment of lump sums from uncrystallised benefit rights under a money purchase arrangement (as defined in section 152 of the Finance Act 2004) will be permitted. As the definition of “money purchase benefit” is narrower under pensions law, the Pension Schemes Act 2015 defines the benefits to which these new flexibilities apply as ‘flexible benefits’. These are money purchase benefits, cash balance benefits and any benefit which falls within the definition in section 152 of the Finance Act 2004, but contains some other element of guarantee which means that it is neither a money purchase benefit nor a cash balance benefit for the purposes of pensions law.
11.Cash balance arrangements are like money purchase arrangements, in as much as they provide a fund to the member but, unlike a money purchase arrangement, a cash balance arrangement includes some element of guarantee, such as a guaranteed interest rate or guaranteed amount.
12.The Act deals with the changes required in pensions legislation consequent on the changes in the Taxation of Pensions Act 2014, to ensure the new tax flexibilities work smoothly with pensions legislation.