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A-Day will see split into haves and have nots

Companies will not have to adopt new tax-free rules

A-Day changes will create a dual system of haves and have-nots among occupational pension scheme members because schemes are not forced to adopt the new rules.

Benefit consultants and financial advisers are warning that 25 per cent tax-free cash and access to the new contribution limits coming into force next April will not be a given right to all workers.

Schemes that value tax-free cash payouts on 3/80ths basis will not be able to pay out 25 per cent tax-free cash under the simplified regime unless trustees change the scheme rules. There are also unresolved issues over whether companies will embrace flexible retirement and allow employees to take part of their pension benefits while continuing to work.

Watson Wyatt senior consultant Kathryn Armitstead says schemes where benefits are linked to the earnings’ cap have been given a five-year grace period by the Revenue in order to give trustees a chance to rewrite their scheme rules and prevent liabilities growing exponentially from A-Day.

However, this does not mean that all employees will have the right to 25 per cent tax-free cash after 2011 as this can still be overruled by scheme regulations.

Hargreaves Lansdown head of pensions Tom McPhail says the move will confuse people by effectively creating a dual system. He says: “The extent to which occupational schemes are not adopting the new rules after A-Day is not appreciated.”

Armitstead adds that any- one taking early retirement next March could also miss out and potentially have a claim against trustees.

She says: “If the tax-free cash amount is set lower than 25 per cent in the scheme rules that will not change unless the trustees adopt the new rules. They are not a right or something forced on schemes.”

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