There are so many advice angles to the new pensions tax regime that it is difficult to pin them all down.
You could construct lists under headings for preand post-April 2006, employer, employees, self-employed, investment, retirement opt-ions, funding, life cover, high earner, protected rights, taxfree cash and many permutations of such headings.
For example, there are particular issues under the combined heading “investment and retirement options” for people who want continued exposure to property in a pension wrapper after they take some benefits.
Here is a selection of 10 of the above issues which are likely to figure prominently in such lists:
1. For higher earners wanting to maximise their entitlements at April 2006, fund to the maximum between now and then? This applies whether primary or enhanced protection is selected.
2. For schemes currently offering a mix of lump-sum and dependants' pension on death in service, should this be varied after April 2006? Lump-sum death benefits can then be provided tax-free up to £1.5m for everyone but the risk is that beneficiaries might blow the cash, as some lottery winners seem to have done.
3. For small self-administered schemes, should the investment mix be changed in adv-ance of April 2006 to maximise holdings in incestuous investments, perhaps with borrowing, on a “buy now while stocks last” basis?
4. For people currently contemplating leaving service so that they can draw benefits from their current employer's occupational pension scheme, wait until after April 2006 so that they will not need to leave service? Note that for people planning this earlier than normal pension age, it will only work if the scheme also allows it.
5. For funded unapproved retirement benefit schemes, maximise contributions in advance of April 2006 because Furbs contributions after then will be horrendously tax-disadvantaged?
6. For people attracted by the prospect of residential prop-erty in their pension wrapper after April 2006, maximise current funding so that they then have the highest possible purchasing power?
7. For people who think they may eventually pay a recovery charge, stop contracting out of state second pension by April 6, 2006? There is a general issue about the value of contracting out rebate but the particular issue here is that the value of rebates counts against the lifetime allowance, whereas the value of the alternative state pension accrual does not.
8. For people who have a preserved entitlement in a moneypurchase occupational pension scheme where the tax-free cash element is greater than 25 per cent, consider a transfer to a section 32 contract before April 2006? If such a person does not trust the old employer or is dissatisfied with the investment performance, a transfer to section 32 before April 2006 will preserve the enhanced tax-free cash position but voluntary transfer to anything after April 2006 will not.
9. For people who want maximum tax-free cash now but do not want to pay income tax on residual pension before they actually need that pension, go into drawdown and take minimum drawdown of zero after April 2006? In fact, they could go into drawdown on April 7, 2005, take no drawdown for 364 days, then rejig drawdown limits on April 6, 2006 so that they still do not need to take anything out.
10. For people who are thinking about taking pension today, when for them tax-free cash would be less than 25 per cent, wait until after April 2006? Examples could include people with protected rights or AVCs or members of public sector schemes where taxfree cash is three-eightieths for each year of service. Note, however, that such schemes would have to allow this higher tax-free cash and at the time of writing, it is not clear whether this will be so.
In this highly selective list of 10 issues I have deliberately alternated between ones which mainly affect high-net-worth individuals and ones which can affect anybody.
This is to make the point that the new pension tax simplification regime is not just about fat cats. There is hardly anyone in the working population who is not potentially affected by these changes for better or for worse. I happen to believe that, for the vast majority, the changes are for the better.