Pension simplification

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In 2004 the Labour government announced plans to rationalise the British tax system as applied to pension schemes; these changes are referred to as pension simplification.

The new single tax regime were adopted on 6th April 2006; this date is referred to as 'A'-day.

1 Purpose
2 Main changes
3 External links
4 See also

[edit] Purpose

The aim is to reduce the complicated patchwork of legislation built-up by successive administrations which act as a barrier to the public when considering retirement planning. Ultimately the government wishes to encourage retirement provision by simplifying the previous eight tax regimes into one single regime for all individual and occupational pensions.

[edit] Main changes

Broadly the new regime will allow considerable freedom in the tax relievable contributions that may be made to pension schemes, and the assets in which they may be invested. It also however caps the size of tax favoured pension fund that may be accumulated by an individual. This 'lifetime allowance' has been initially set at £1.5M as of 6th April 2006. Funds accumulated in excess of the lifetime allowance may be subject to a tax charge of 55%. Transitonal protection provisions have been made for indidviduals who may already have accumulated pension funds in excess of this amount.

Full concurrency - contribute to personal and occupational schemes at the same time.
Single tax regime - one set of tax rules.
Lifetime allowance - £1.5 million for 2006/7 tax year rising to £1.8 million in 2010/11.
Annual allowance - obtain tax relief up to £3,600 or 100% of income. Maximum £215,000 per year rising to £255,000 in 2010/11.
Alternative secured pensions - possible to avoid purchasing an annuity even after age 75.
Single allowable investment regime - all schemes allowed to hold qualifying investments.

In addition to the above changes, employees aged 50 or over will be able to withdraw 25% of their pension fund as a tax-free lump sum, whilst continuing to work. The age at which this claim can be made will increase to 55 in 2010/11. It will also be possible to withdraw another 25% tax-free lump sum upon retirement.