Statutory permissive override 

When pension freedoms were introduced in 2015, there were many changes that needed to be made in a short space of time. To help with this, legislation was put in place that meant any money purchase arrangement could offer the new types of flexible pension payments without having to update their scheme rules. This statutory permissive override can be found in the Finance Act 2004 s273B and allows payments of drawdown pension for members, dependants, nominees and successors, along with other pension freedom payments. 

This means any money purchase pension scheme can designate funds to drawdown for the member or, on their death, for their beneficiary, regardless of what is written in their scheme rules. If the original scheme does not have the functionality to physically make the payments of drawdown income, then they only need to pay out the PCLS, make the designation and then make a like-for-like drawdown transfer to a scheme that can facilitate the payments. Once the right to a protected lump sum has been used, the subsequent drawdown to drawdown transfer does not need to be a block transfer.

This could help clients with single member contracts containing protected lump sum rights who would otherwise be unable to access income drawdown with their residual funds if the only income option in the scheme rules was an annuity. The original ceding scheme could still choose not to facilitate this as the member is not able to enforce use of the override.

The receiving drawdown scheme will need confirmation:

• that the funds are designated into flexi-access drawdown in the member’s name;
• of the date of designation;
• of the amount designated; and
• whether the MPAA has been triggered.

In practice, the MPAA will never be triggered if the ceding scheme does not have the ability to pay income, but the ceding scheme needs to include this in its written confirmation to the new scheme. 

Charlene Young is senior technical consultant at AJ Bell