Responses to the Inland Revenue
As far as the tax changes are concerned, my two main points are that the proposals seem to be good for final-salary scheme members, but not so good for money-purchase scheme members, and that, given we havenít seen all the detail we need to see to give advice on the changes, the implementation date is looking a bit challenging.
On the first point, the proposal is that final-salary benefits can be valued using a ratio of 20:1 when testing against the proposed Lifetime Limit of £1.4 million on pension savings. In effect, this means that final-salary scheme members are not really going to be limited to £1.4 million, some of them will be able to have benefits that cost £4 million if they like and they could be Ďdeemedí to be within the £1.4 million limit. Thatís great! We end up giving lip-service to the £1.4 million limit being there, but, nudge-nudge wink-wink, it isnít really. Well, thatís OK for people in final-salary schemes, but weíd like to see people in money-purchase schemes getting the same treatment and thatís what our response is all about. If you read the attached full-technicolor version all will be revealed.
As far as the timing of A-Day is concerned, I think weíre happy to go along with it being 6th April 2005, but our assumption is that if thatís going to be the date, then we will be seeing the full details of the changes before this monthís out. Basically, we think weíll need a full year to get our ducks in a row advice-wise, so if 2005 is a goer, it must mean the Government is about to publish full details any minute now (doesnít it?). Letís hope so, and thatís just what our response is on about.
Also and slightly related to this subject, Iíve just received a copy of the National Audit Officeís report on the Governmentís estimates of the impact of the pensions lifetime allowance. When I say Ďjustí, by the way, I literally mean it for once. The e-mail came through while I was writing the above rant (thatís the power and immediacy of the electronic century for you). Now, I wonít pretend to be superhuman and give you a complete rundown of it here, but I can run through a few highlights.
Youíll remember the Chancellor said he was asking the NAO to report back on how many people would be adversely affected by this new lifetime limit approach to pensions, and that heís going to mention it in his speech next week on 17th March. Well, this is it. Unfortunately itís 39 pages long and full of graphs and charts and such, but the bottom line appears to be that the Governmentís figure of only 5,000 people being affected is a bit on the low side, but that the NAO themselves have found it a difficult question to answer, but say that 10,000 might be a bit more like it. They actually say that ďGreat uncertainty attaches to any estimate of the number of people likely to have funds in excess of £1.4 million at A-DayĒ. And, of course, this is all complicated by the fact the Inland Revenue have introduced this 20:1 conversion factor that means that some people with more than £1.4 million will be counted as having less than £1.4 million, which takes me back to where I started at the top of this page before I was so rudely interrupted by the NAO paper popping out of hyperspace.
What Iíll do is read it through with a cup of cocoa before turning in tonight and write-up a BeeLine on it for you for Thursday. You canít ask for more than that now, can you?
9 March 2004
This document is based on Scottish Lifeís understanding of the tax simplification pension proposals issued on the 10 December 2003. These are only proposals and are subject to consultation. These may change in the future.