The entire pension simplification review has been left in uncertainty after Chancellor Gordon Brown in his pre-Budget report on Wednesday ordered the National Audit Office to review the numbers affected by the £1.4m lifetime limit.
Product providers say the Treasury is holding a gun to the head of the industry by threatening to drop the programme if it is proved wrong on the numbers, with no decision until the next Budget.
The NAO will determine if the current earnings' cap is equivalent to £1.4m and if it affects 5,000 or the far greater figures estimated by industry experts. Brown will then decide between the limit or keeping eight different tax regimes.
Life offices and advisers say the Treasury's timetable of implementation by April 2005 is unrealistic and likely to cause chaos as nobody will know if simplification will go ahead until next spring. The delay leaves high-end IFAs unable to advise clients.
The Inland Revenue is planning to cut the penalty charge for sums over the limit from 33 to 25 per cent and restore drawdown death benefits before age 75. Pension investment in residential property will be allowed.
Scottish Equitable pensions development director Stewart Ritchie says: “I do not understand why April 2005 is sacrosanct when so much remains uncertain and why does it have to be all or nothing?” Scottish Life head of pension strategy Steve Bee says: “The Treasury has a gun at the pension industry's head. Rather than changing the limit if they are wrong, they are threatening to drop the entire simplification proposal altogether.”
Richard Jacobs Pension & Trustee Services director Richard Jacobs says: “This is outrageous blackmail. The new legislation is good so to lose it all over something as stupid as the level of the limit is ridiculous.”