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Radical Revenue clears the way

So we have finally got sight of the long-awaited Pensions Green Paper and,

crucially, the results of the review undertaken by the Inland Revenue.

The Green Paper contained few surprises, with most of it having been

trailed in advance, but the Revenue review is very helpful and should lead

to simplification if implemented. We should remember that these are only

proposals and are subject to change through the consultation process.

The problem I have with this stuff is that, taken as a whole, the proposals

are a bit of a curate&#39s egg – good in parts. My initial reaction, having

read the details, was just that. Bits are good, even brilliant, but other

bits are somewhere between so-so and duh.

The Green Paper does not takes things that much forward, I&#39m afraid. The

crucial issues acting as barriers to pension distribution (the minimum

income guarantee and pension credit) were not even mentioned, meaning the

paper is too limited to be helpful. However, the Revenue paper is

outstanding and something I was surprised and delighted to see.

The main proposal is a single tax regime, for both individual and company

pensions and, surprisingly, for defined benefit and defined contribution.

That is pretty radical and goes a great deal further than expected – I

would have have been happy with a single DC regime. The way that this

single regime is envisaged working is that the Revenue will value all

pensions as they come into payment and a monetary limit will be set on the

maximum amount that an approved pension fund can attain. This will be

£1.4m from the proposed implementation date of 2004 and indexed

annually thereafter.

Basically, it means for most people that the existing benefit limits will

cease to have any relevance.

In this way, the legislation is retrospective and most people should be

able to put more in to tax-efficient pensions and receive higher tax-free

cash sums as well. For those people who already have retirement savings

worth more than £1.4m at the date of change, protection of their

accrued rights is proposed.

As far as benefits are concerned, everybody will be able to take up to 25

per cent of their pot as a tax-free cash on retirement. This is big news

indeed. It means that the previous anomalies that littered our pension

landscape would appear to have been swept away.

In the same way, the three tax regimes affecting occupational schemes – the

pre-1987 regime, the post-1987-pre-1989 regime and the post-1989 regime

would be made irrelevant.

It is proposed that it will still be possible for people to draw pension

benefits from 50 but from 2010 this will be revised up to 55. This should

ensure that those currently making retirement decisions will not lose out.

And, crucially, because the lifetime limit is proposed to apply

retrospectively, people making pension decisions between now and the

proposed 2004 start date will not lose out either. So we should not see a

period of uncertainty where people do not know what to do while legislation

is changing. This is a fairly long-trousered approach to pension reform too

and I am pleased to see it.

The consultation on the Green Paper ends on March 28 and the consultation

on the Revenue proposals ends on April 11. I am fairly hopeful that, by

April, we will at last have a clear idea of the pension environment we are

heading for and I am optimistic that, with a little luck and hard work in

the consultation period, we will find ourselves set on a sensible course

for all our pension futures.

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