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Court ruling may prompt retirement rules rethink

Retirement rules could be redefined following a High Court judgment dealing with how the Inland Revenue treats retirees looking to draw their pension early.

The ruling in Venables Hornby could mark a major shift in the Revenue&#39s treatment of controller directors and non-executive directors who retain a reduced role in their company but want to start drawing on their occupational pension.

The court found in favour of David Venables, a non-executive director who was semi-retired and tried to take his pension money, even though he was still doing limited work for his company.

He was told the pot would be taxable because he did not fit the accepted definition of retirement.

The Government does not allow people to draw their tax-free lump sum until they have completely retired but the ruling could make it reconsider.

The Revenue traditionally pays closer attention to directors of small firms because they are in a position to manipulate the pension arrangements but the High Court ruling declares this to be unfair. The Revenue will appeal against the decision.

Scottish Equitable pensions development director Stewart Ritchie says the case addresses a basic issue of fairness, given that it is quite common for senior employees in the public sector or big plcs to resurface in a different capacity after they have started drawing on their pensions.

Employee benefits consultancy Towers Perrin partner Mark Duke says: “This case asks the question, what constitutes retirement? It may be the thin edge of the wedge. The general theme is bringing Revenue rules into line with modern working patterns.”

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