UK government details simplified pensions tax
UK – The UK government has published details of the proposed simplification of pension taxation in the new Finance Bill.
“At present there are eight different sets of rules for pension schemes, giving rise to a system that is complex, expensive and confusing for consumers,” the government said in an explanatory note.
It said it would abolish “the existing multiplicity of rules and regulations” and replace them with one single regime based on a ‘lifetime allowance’ for the amount of pension savings that can benefit from tax relief.
The single lifetime allowance on the amount of pension savings that can benefit from tax relief will be set at 1.5 million pounds and rise annually in pre-announced steps until 2010.
The new rules would provide “greater individual choice and flexibility”. It added that everyone would have the same opportunity to make tax relieved pension savings over a lifetime.
Paymaster General Dawn Primarolo said: “The government is committed to creating a modern and fair tax system which encourages work and saving, and raises sufficient revenue to pay for investment in public services.”
“The Finance Bill introduces important measures to modernise taxes, keeping pace with real world developments and with the global economy, and to tackle tax avoidance and evasion.”
“The new rules are undoubtedly simpler and more flexible for the vast majority of pension savers,” said Tim Keogh, European partner at Mercer Human Resource Consulting.
“Although they take up more than a hundred pages of the Bill, the bulk of this detail will mainly be of concern to those affected by the lifetime allowance.”
He added: “As with all pension reforms it is important that the detail works in the long term. We are disappointed that there is no guarantee of a minimum increase in the allowances after 2010, say, equal to price inflation.”
The second reading of the Finance Bill will be on April 20.