Planning for the Simplified Pensions Tax Regime

Relieve executive stress

Act now before A-day
Executives must act soon if they want to avoid information gridlock in the rush to apply for pension valuations from previous employers and providers. Potentially, these valuations are essential requirements for anyone with substantial pension funds who wants to make the most of current tax breaks and avoid penalties under the proposed new rules that come into force on 6 April 2006 (A-Day).

Simplified regime

Planning for the simplified pension tax regime could prove extremely complicated for executives, who face a 55 per cent tax charge on pension assets over £1.5m unless they elect for transitional protection of their pre A-Day benefits.

If you currently have less than £1.5m in total pension assets but expect your funds to increase significantly before retirement, you should talk to us.

Protecting assets

There are different ways to protect assets after April 2006, but the choice will depend on a clear assessment of your current position. This means that all your current and deferred pension arrangements with previous employers and providers must be valued, because the Lifetime Allowance, initially set at £1.5m, applies to the total cash value.

At present, it can take some time to get valuations from previous schemes and delays are likely to lengthen as A-Day approaches.

Critical planning

This will be a critical stage in your planning if you intend to retire early or are considering a move into a self-invested personal pension (SIPP) and income drawdown to gain greater flexibility over your funds.

One of the simplification aspects relates to tax-free cash, which at present can be based on a range of calculations depending on the type of pension arrangement and when you joined. In future, the maximum tax-free cash will be a straight 25 per cent unless you seek protection, whereas at present it can be much more than this. However, your ability to take a 25 per cent tax-free cash sum will be dependent on your scheme amending its rules appropriately if you are currently a member of an occupational scheme.

Levels and bases of, and reliefs from, taxation are subject to change. Because these investments may go down in value as well as up, you may not get back the full amount invested. The amount that can be contributed into pension schemes is subject to set limits.

If you would like to discuss your pension situation, please act sooner rather than later. Please e-mail or contact us for unbiased independent advice.