So what are the key changes?

One regime
One new pensions tax regime will apply to members of all approved schemes (henceforward to be called registered schemes). All existing approved schemes (occupational, personal, stakeholder and retirement annuity contracts) will be subject to the rules of the new tax regime. There are, however, some schemes that may not be covered by this legislation, but this should become clearer in the future. Please note that the proposed changes listed below may be subject to existing trust deeds of the schemes.

Lifetime Allowance
A single Lifetime Allowance limiting the total amount of pension savings that can benefit from tax relief will be set. In tax year 2006/07 this will be £1.5 million. This will be increased in each subsequent tax year as indicated by the Treasury. Where the value of an individual’s retirement benefits exceeds the Lifetime Allowance, a charge of 25% will be levied (55% where the excess is taken as a lump sum).Transitional protection
Special transitional rules will enable members, where appropriate, to protect their entitlement to pension and tax-free cash benefits secured prior to 6 April 2006.

Contributions
There will be an annual limit of inflows of value to a member’s pension funds. As at 6 April 2006 this will be £215,000. This amount will be increased each tax year as indicated by the Treasury.
The maximum member’s personal contribution in each tax year will be limited to the greater of £3,600 gross and 100% of earnings.
Employer contributions will normally be allowable as a business expense in the accounting period in which they are paid. Tax relief will be available on the member’s own contributions at the member’s highest rate(s).

Tax-free cash
Up to 25% of the capital value of a member’s benefits within the Lifetime Allowance may be taken as a tax-free cash sum. The balance will be used to provide taxable annuity or income benefits. There is no specific limit on the maximum pension/income that can be provided other than that available from the capital value of the member’s fund within the Lifetime Allowance.

Benefits
Benefits may be drawn from age 50 onwards (age 55 from 6 April 2010). A member may be able to draw their benefits in full or in part without having to retire from their employment.
Where a member dies before drawing benefits, a lump sum of up to the amount of the Lifetime Allowance can be paid free of IHT to one or more beneficiaries. Where a lump sum exceeds the Lifetime Allowance, the excess will be subject to tax at 55% on the recipients of the death benefit.

Provision may also be made for a spouse/dependant’s pension/income payments in the event of the death of the member before or after drawing benefits. Any such spouse/dependant’s benefits will not count against the Lifetime Allowance of the deceased member or the receiving spouse/dependant.