18 March 2004

This information is provided courtesy of Law-Now, CMS Cameron McKenna's free on-line information service.

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Pensions Tax Simplification

In the Budget, the Chancellor confirmed the Government's
commitment to proceed with the simplification of the tax
regime for occupational pensions.

The key points are set out below:

- The new regime will be implemented in April 2006.
- The lifetime allowance will be £1.5 million in 2006; £1.6m
in 2007; £1.65m in 2007; 1.75m in 2009; and 1.8m in 2010.
The level of the allowance will be reviewed every 5 years.
- The annual allowance will initially be set at £215,000 and
will increase each year (rising to £255,000 by 2010) and
the level will be reviewed every 5 years.
- Schemes will be able to pay tax-free lump sums of up to
25% of the capital value of the pension, subject to a maximum
of 25% of the lifetime allowance.
- A 25% charge will be levied on funds in excess of the
lifetime allowance. Funds over the lifetime allowance may
be taken as a lump sum, in which case the charge will be at
a rate of 55%.
- A charge of 40% will be made on contributions or increases
above the annual allowance.
- A valuation factor of 20:1 will be used to value defined
benefits for the purpose of the lifetime allowance and a
factor of 10:1 to value the annual increase for the purpose
of the annual allowance.
- Transitional arrangements will protect pension rights built
up before 6 April 2006. There will be two options for
transitional protection from the lifetime allowance charge.
- The minimum pension age will rise from 50 to 55 by 2010.
Those with certain existing contractual rights to draw a
pension earlier may have that right protected.
- Members may, where the rules allow , continue working for
the same employer whilst drawing retirement benefits.
- Pensions will still need to be secured by age 75.

The Government's stated intention is that these reforms will
"bring simplification and increased flexibility that will
ensure a transparent, consistent and flexible system that is
readily understood, making it easier for people to concentrate
on deciding when and how much to save for retirement".

More details of the Budget can be found at:
http://www.inlandrevenue.gov.uk/budget2004/index.htm.

For further information please contact Mark Atkinson at
mark.atkinson@cmck.com or on +44 (0) 207 367 2184

Interested in finding out more about pensions? Click on or
copy and paste the link below to access our plain English
guide to the Pensions Bill:

www.law-now.com/pensionsbilltoolkit


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