Source · Select Committees · Work and Pensions Committee
Recommendation 4
4
Paragraph: 19
People can usually take up to 25% of their pension as a tax-free lump sum.
Recommendation
People can usually take up to 25% of their pension as a tax-free lump sum. This is one of the most well-known UK pension policies and leads to many people who access their pensions for the first time taking poor decisions about the remaining 75%. We heard persuasive arguments both for and against decoupling the 25% of a pension pot which is tax free from the rest of the pot. The best way to assess these arguments is through further research and testing. We recommend that regulators should carry out a scoping exercise to establish the research and testing which could be undertaken on decoupling the 25% of a pension pot which is tax free from the rest of the pot and present their findings to our Committee.
Paragraph Reference:
19
Government Response
Acknowledged
HM Government
Acknowledged
We welcome the Work and Pension Select Committee’s interest and support for the work we are taking forward to explore the ways in which CDC provision might be extended beyond the single or connected employer schemes we are currently legislating for. The draft affirmative regulations needed to implement single or connected employer CDC schemes were debated in Parliament in January and have been approved. The draft negative regulations have also been laid before Parliament and both sets of regulations are now in place to come into force on 1 August 2022. We are continuing to hold individual discussions with a number of interested parties to seek their input on the ways they consider CDC could be extended including to unconnected multi-employer CDC schemes, Master Trusts and decumulation vehicles. We also held an event with the CDC forum established by the Royal Society of Arts, Manufactures and Commerce on 28 March. The Minister for Pensions & Financial Inclusion underlined his commitment to progress this work given the potential benefits CDC could bring to many more savers and employers. The Minister made clear that we want to collaborate with those parties who are actively pursuing alternative CDC models to help us develop a potential policy approach for extending CDC to multi-employer schemes, Master Trusts and decumulation vehicles. The Minister also agreed with the Committee that it will be important to work through the potential risks and implications of any potential extension to ensure that we get this right and said that the Department aims to consult later this year on the appropriate way forward for the broadening of CDC provision. The government has made it clear that it will monitor the operation of the first CDC schemes with TPR to ensure the legislation works as intended. This includes considering Government and Financial Conduct Authority Responses to the Committee’s Fifth Report 7 the performance of these schemes, their effectiveness at providing pension incomes and any equality considerations that we identify. In addition, our legislation will require schemes to set out and report on their on-going viability informed by actuarial testing and modelling. This will enable TPR to assess a scheme’s ability to provide the level of income it aspires to on an on-going basis. We also plan on engaging proactively with employers, workforce representatives and schemes to identify any issues they are having around the new CDC regime as it beds in and seek views from schemes and the Regulator to provide assurance on the effectiveness of the authorisation framework.