Finance Act effect on trustee benefits reviewed
UK - The Finance Act 2004, meant to simplify pension taxation with a single tax code for occupational and personal pensions, might give trustees the power to increase benefits, a seminar has been told.
Katie Banks, a partner with the international law firm Lovells, said that under the Finance Act transitional provisions it is proposed trustees would be given some benefit design discretion.
Banks, who advises employers and trustees of occupation schemes, told IPE: “ Where rules say that benefits could be higher, up to existing Inland Revenue limits, trustees will have the discretion to increase those limits up to that level.”
“But they are draft regulations and we have made the point that revenue really should be employer power” she stressed. “We are waiting to hear what the Inland Revenue will think about that”
Last year the UK tax agency Inland Revenue launched a formal consultation period on the draft regulations.
“The discretion that they are proposing is quite limited but it actually allows trustees to pay more” Banks also told IPE, adding she expected formal regulations within this year.
Banks spoke at a seminar organised by Lovells to highlight the changes to be brought about by the Finance Act, which will be implemented on 6 April 2006.
The seminar also included presentations by Lovells partners Stephen Ito and Jane Samsworth and was chaired by Russell Strachan, also a partner with the law firm.
The speakers pointed out how that the Finance Act will affect areas like contributions, retirement age and flexible retirement.
An employee’s yearly tax-relieved contributions will be limited to £3,600 (€5,190) but contributions in excess will be allowed, albeit with no tax relief.
There will be no limit to employer’s contributions, but tax relief may be subject to spreading if contributions are “significantly more” than in the previous year.
Retirement age, so far 50 years, will be increased to 55 from April 2010.
Contrary to the present rules, the new tax regime would allow employees to draw their pensions without retiring, in what is known as a ‘staggered retirement’. Scheme rules may also allow ‘staggered vesting’.
“Generally, I think the Finance Act does not make things simple. It is better because one regime applies to everybody but the rules that apply to everybody are very complicated,” Banks told IPE.