This year's second Finance Bill was published yesterday, together with Explanatory Notes.

Clause 5 contains a power enabling the Treasury to repeal via secondary legislation the provisions for the High Income Excess Relief (HIER) charge in FA 2010 s.23 & Sch 2. Any Order made under this provision must be made on or before 31 December 2010. Under Sch 2 FA 2010, the HIER charge otherwise will come into force on 6 April 2011.

On 22 June 2010, the Government announced it would "end the existing rules that create an effective obligation to purchase an annuity by age 75 from April 2011". How exactly this should be done is to be the subject of a formal consultation expected to be launched this month. As an interim measure, provision is made in Clause 6 and Schedule 3 of the Bill so that the tax rules will not make members of registered pension schemes who reach the age of 75 on or after 22 June 2010 buy an annuity (or otherwise secure a pension income) until they reach the age of 77. These transitional tax rules will have retrospective effect, so they apply from 22 June 2010.

Today the legislation and notes have been supplemented by draft Technical Guidance from HMRC. This 19-page document describes how the new interim pensions tax rules will apply, and also gives guidance on the related changes to treatment for IHT purposes.

The changes affect individuals with a money purchase arrangement under a registered pension scheme whose 75th birthday is on or after 22 June 2010 and who immediately before their 75th birthday have either

• an unsecured pension fund or
• funds held in the arrangement that they have chosen not to draw as benefits.

HMRC says the Bill will enable all such members to defer their decision on what to do with their pension savings until the new rules are finalised next year. Any pension benefits which remain uncrystallised at age 75 will be deemed as available to pay unsecured pension (USP) as before, but the funds will then stay in the USP fund and not become an alternatively secured pension (ASP) fund until the member attains age 77.

There is a subtle change to the PCLS rules which was not clear at the time of the Budget announcement. Under the existing rules, a member reaching age 75 before 22 June 2010 ceases to be entitled to a PCLS from uncrystallised funds from that birthday: they have to make a decision beforehand if they want tax-free cash. This is because a BCE 6 arises at the date of entitlement, which for a PCLS is deemed to be immediately before the date entitlement to the connected pension arises - ie immediately before age 75.

Under the new transitional rules there will be no BCE 6: all the uncrystallised funds are deemed to be crystallised via a BCE 1 for LTA testing. The rules give trustees and managers discretion to allow the member to receive a lump sum when a USP fund is deemed to be created at the age of 75. Then, the member has a year to make up their mind. The rest of the existing rules for payment of a PCLS, which allow a window of up to 12 months after entitlement arises, continue to apply; so if they wish to take a tax-free lump sum (PCLS), that decision could be deferred until immediately before their 76th birthday. This also covers members untraceable at age 75.

If a member purchased a short-term annuity before 22 June 2010 and it ends on attainment of age 75 after 22 June, they cannot extend the annuity to age 77; instead, a new short-term annuity will need to be purchased if the member wishes to carry on with that.

Pending the final rules next year, there is no change for any individual who reached the age of 75 before 22 June 2010: if they were in ASP on that date they remain in ASP (unless and until they purchase a lifetime annuity or a scheme pension).

For schemes whose rules specifically do not offer USP from age 75, the transitional rules include a statutory override giving trustees and managers a discretion to provide or continue providing USP beyond age 75 and up to age 77.

There is no need for an automatic review of the USP basis and limits at age 75. The existing GAD Tables will continue to apply without change, ie when calculating the maximum income withdrawal for an individual aged over 75, the basis amount will still be determined as if the individual were aged 75. An ASP fund is not created until reaching age 77. Members untraceable at age 75 are deemed to be in USP (and LTA-tested) on that date but not automatically tipped into ASP until age 77.

The provisions in the Bill which disoblige members of registered pension schemes who reach age 75 on or after 22 June 2010 from having to buy an annuity or otherwise secured pension income until they reach age 77 will also apply for the purposes of the inheritance tax charges that currently apply to pension scheme members aged 75 and over. These charges will not now come into play until the ASP rules do, ie when the member reaches age 77. There is a warning, though, that the changes do not follow through for the purposes of the anti-avoidance provisions at s.151D IHTA 1984 (inserted by FA 2008 Sch 28 para 10).

The changes also still leave the prospect of a charge to inheritance tax under s.3(3) of the Act, where the member of a registered pension scheme has died having omitted to take his retirement benefits so that the death benefits can pass to his chosen beneficiaries. This was the issue in the recent high-profile Fryer case.