IFAs have been stunned by the radical overhaull of the pensions regime proposed in the Government's Green Paper which will see the eight existing tax rules replaced by a single regime.
From 2004 current annual contribution limits will be replaced by a single indexed linked individual lifetime limit of £1.4m on an individual's pension fund at retirement. Individuals will also be limited to a maximum annual contribution of £200,000.
Both basic and higher rate tax reliefs look set to stay.
While Department for Work and Pensions proposals for simplification of occupational pensions have been widely trailed, the Inland Revenue's consultation document on the simplification of the tax regime is being hailed as revolutionary.
Advisers and providers say bringing existing pensions under a single regime as a real step towards pension simplification, with specialist pensions such as small self-administered schemes, self-invested personal pensions and AVCs likely to die off.
Tax-free cash on pensions will remain at 25 per cent but the age pension benefits will become accessible is raised from 50 to 55.
Scottish Life head of pension strategy Steve Bee says: “These proposals constitute the most positive simplification for four decades. The Inland Revenue paper clearly tears up the rulebook and deserves the term radical. The retrospection proposals are positive. The one flaw is the failure to look at issues of suitability – the misbuying risk still exists.”
Advisory & Brokerage Services director Gareth Marr says: “The DWP Green Paper is what we expected but the Inland Revenue paper is a bombshell. This is a massive planning opportunity – IFAs need to get their heads round this very quickly as their clients will want to know where they stand.”
A Treasury spokesman says: “Most people will be very happy to reach the £1.4m but anything over that will be subject to tax.”