Wednesday 22 November sees the UK Chancellor's eagerly anticipated autumn statement. The spring budget sprung a major surprise on the pension market with the sudden removal of the lifetime allowance charge, along with the promise to entirely remove the lifetime allowance and some welcome changes to the annual allowance to make it more generous, says Steve Berridge, technical services manager from IFGL Pensions.

The pensions industry has been waiting with bated breath for the final form of the Finance Bill Number 2, which is ushering in the largest changes to the pension landscape since George Osborne's pension reforms of 2015.

So, what would the pension community involved in the provision of products and advice to international expatriates wish for, this November?  

Taxation changes to the payment of certain benefits

It seems likely that the tax break brought in by George Osborne on certain death benefits payable before age 75 is being removed - a reversal of one of the popular elements of ‘Pension Freedoms'. Uncrystallised lump sum death benefits will remain free from tax up to the old lifetime allowance limit (£1,073,100), but death benefits taken as income via drawdown before age 75 will now be taxed as income, it appears.

Although ex-pats are likely to be able to claim a rebate on any UK tax deducted as income, if the beneficiaries are UK domiciled for tax purposes, this change will not be welcome. Even for expats with beneficiaries resident outside the UK, there will be additional steps required to ensure the correct tax position is secured. So, our first wish would be for the current tax free (age 75 up to the LTA) status on income payments made from drawdown pots to remain that way!

Lifetime allowance Limit frozen

Although the lifetime allowance charge has been removed and the lifetime allowance we are told will disappear in April 2024, there is a sting in the tail! When the pension changes were announced, it was confirmed that the pension commencement lump sum would be capped at 25% of the last published lifetime allowance figure of £1,073,100 (or enhanced/fixed protection limit where applicable). 

The lifetime allowance had been frozen in any case to April 2026, but with it now being abolished, it appears that the maximum tax-free cash sum available to most pensioners will for the foreseeable future be £268,275. 

With inflation recently running as high as 10% this is effectively quite a stealth tax - another case of fiscal drag which has been a feature of the UK tax system as a whole of recent years.  So high on our wish list would surely be a reintroduction at some point of inflation linked rises to the figure limiting pension commencement lump sums, whatever that is going to be called, after April 2024.

State pension rises for expats

The first two wishes are within the realms of possibility. This one is probably not on the agenda but nevertheless would really aid expats who rely heavily on their UK state pension after moving abroad.  Currently, those who are on receipt of the state pension and resident in the UK are protected by something known as the "triple lock". This ensures their payments increase annually in line with whichever of the following is the highest:

·       Price inflation

·       Average wage growth

·       2.5%

British expats living in some countries, also benefit from their state pensions being increased in the same way as under "triple lock".

However, UK expats who live in countries such as Australia, New Zealand, South African and Canada do not. They are known as "frozen pensioners". This is because their pensions are frozen at their original payment level, irrespective of inflation. This can cause big problems for those for whom the state pension makes up a material part of their income.

State pension uplifts regardless of where the ex-pat lives would be fairer than the current "lucky dip" regime based on the country you now live in.

So, there are our three wishes. Will the Chancellor genie grant them on 22 November? We will wait and see.

By Steve Berridge, technical services manager from IFGL Pensions (its SIPP provider and administrator in the UK).