The new inland revenue tax proposals
So, when's A-day then?
You will have doubtless heard all about ‘A-Day’ already. It’s the date, so far unfixed, in the future that the Inland Revenue have chosen as the implementation date for their proposed new tax regime for pensions. You know, the date when all of the existing eight tax and benefit regimes are rolled into one, retrospectively and suddenly. After that date, the old notion of benefit limits in pensions will disappear and everyone will be subject to a tax regime based on the new maximum Lifetime Limit on the level of the pension fund we will each be allowed to accrue. To start with, this Lifetime Limit will be set at £1.4 million and is likely to be indexed after A-Day to increase in line with the general increase in prices. Yes, yes I can hear you saying, we already know all this, when is A-Day?
The answer to that deceptively simple question is 'no-one knows.” Not a conclusive answer, I know, but a correct one. In it’s consultative paper, ‘Simplifying the taxation of pensions: increasing choice and flexibility for all’, the Inland Revenue said that it is it’s intention to implement the proposed changes in 2004. Or to put it another way, next year. Now, that’s a bit soon in my opinion, and the opinion of practically everyone else who’s commented on this in the press. Realistically, with the extent of these proposed changes being so broad, it is going to take quite some time for pension providers and pension scheme managers and administrators to rewrite and reconfigure nearly all of their systems and processes both on an ongoing basis and retrospectively, and I am sure this will be explained sufficiently well during the consultation process for a sensible time to be set for implementation. My guess would be 2005 at the very earliest, but much more likely 2006 if we want the transition to run smoothly and to include all the customer awareness stuff that will be an important part of the success of such a far-reaching venture.
In practice, what we are likely to see is a consultation process finishing in early April 2003, followed by further consultation later on during the Summer and then draft legislation, but with an attaching implementation date of one or two years hence. It is possible that some delegated legislation (i.e. little bits and pieces that can be done easily and get a few favourable headlines) will be pushed through in 2004, but the real meat of it will, I think, have to come in much later. There are good precedents for this. Those of you well up on your pensions history will remember that the 1999 legislation, which among other things introduced Stakeholder Pensions, was not enacted until 2001 to give everyone time to cope with the changes. So we should have every reason to expect to be given enough time to get our ducks in a row this time too I think.
If you've been reading some of my other recent BeeLines, you'll know that there are good reasons for us to start explaining the upcoming changes to our customers and clients during the period running up to A-Day and this will obviously become very important once we know exactly what is going to happen and when. Hopefully as we see more consultation and draft legislation things will begin to really take shape. Keep checking into the BeeHive and I'll do my best to keep you up-to-date with this important stuff as it chugs along.
4 February 2003
This document is based on Scottish Life’s understanding of current tax law and the Inland Revenue’s proposals and the Pensions Green paper issued on 17 December 2002. These proposals are subject to consultation and may change in the future.