Pensions News Focus

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Inland Revenue simplification: The new regime

(This summary does not take account of changes made by the Finance Act 2004)

The Finance Bill 2004 contains the legislation for the single tax regime that will apply to all tax-privileged pensions from 6 April 2006 (A day). This Pensions News Focus examines the principles therein, although there will undoubtedly be changes as the Bill passes through Parliament.

While there will be few distinctions between occupational and personal pension schemes, some of the new principles will operate differently for defined benefit and money purchase arrangements. Cash balance plans are defined as a subset of money purchase arrangements in which the benefits are not determined solely by the amounts paid into the arrangement (contributions, transfers or credits) in respect of the member. It will be possible for a single scheme to include arrangements of different types and, indeed, for a member's benefit to fall into a different category at different times.

Schemes that are tax-approved on 5 April 2006 will be deemed registered under the new regime, unless by that date the scheme administrator notifies the Inland Revenue to the contrary. However, in those circumstances there would be a 40 per cent tax charge on the value of the assets held on 5 April 2006.

Contributions 

The Annual Allowance (AA) 

The Lifetime Allowance (LTA) 

Valuation of benefits and the recovery charge 

Tax-free lump sum benefits 

Authorised pension benefits 

Death benefits 

Transitional arrangements (pension) 

Tax-free lump sum protection 

Modification of scheme rules 

Minimum pension age 

Serious ill-health 

Taxation of certain authorised payments 

Non-registered schemes 

Maximum permitted tax-free lump sum 

Pensions News Focus provides and in-depth look at a single, important development in the UK, providing information and insight for pensions professionals.

For further information on any of the items included in Pensions News Filter, please contact your usual Watson Wyatt consultant.

The articles in Pensions News Filter are of general interest and guidance. Action should not be taken on any specific article without taking specific advice. Watson Wyatt is represented in the UK by Watson Wyatt Limited. Authorised and regulated by the Financial Services Authority.