The Chancellor is pressing ahead with pension simplification with a substantially increased lifetime limit and a 12-month postponement of A-Day.
In what has been welcomed as a series of concessions by the Treasury, a simplified pension regime will now come in from April 2006 with a lifetime pension fund limit of £1.5m, rising to £1.8m by 2010.
The limit, previously set at £1.4m and indexed to prices, has been the subject of fierce lobbying since it was announced last year. The limit will be reviewed every five years.
Product providers have welcomed the new start date as a realistic deadline for the fundamental overhaul that will shoehorn the eight existing pension regimes into one single system.
Advisers have over a year to advise clients on the changes, provided the Treasury sticks to its timetable of publishing details in the 2004 Finance Bill in November.
But some experts believe that the decision to stick with a 20:1 ratio for the valuation of final-salary benefits leaves a fundamental inequality in the system that disadvantages money-purchase schemes.
Norwich Union Life director of strategic development Stephen Mann says: “This delay shows the Government is taking on board the industry's views to ensure that pension simplification is implemented efficiently and successfully.”
Intelligent Pensions director Steve Patterson says: “From everyone's point of view, this is a common-sense approach. It means providers can get their systems in place and advisers can put in place a plan for advising their clients.”
Charcol Holden Meehan partner Amanda Davidson says: “The increase to £1.5m is a horse-trading position, it is an arbitrary figure. You have to be consistent with your logic. Keeping the 20:1 ratio builds in a basic inequality against defined-contribution schemes.”
The Budget, p2,3,5