Budget Analysis 2004 -Pension Simplification
Pension Simplification Rules Boost Many of you may not be aware that all pensions (and there are nearly 10 different types - all with different rules) are going to be simplified and brought into line with one simple set of rules with effect 2006. One thing that was included in the new proposed rules was that there are to be no more complex calculations on a percentage of your salary or other to work out the maximum you can pay in - only that you have a maximum life time limit that you will be allowed to pay in top your pension scheme.
In the Budget, Mr Brown, after intensive lobbying from the finance industry, has increased this limit to £1.8m from £1.5m with effect 2010.
There will be a yearly contribution limit of £215,000 (we have never met anyone who pays that much into a pension fund). If your pension goes above that these limits you will be taxed quite heavily. There will also be simplification on the amount of tax free cash you can take out (it is already now for personal pensions and stakeholder pensions and will be for all in 2006 - 25% of the total fund value.
Our view The lifetime limit is a difficult call - although we believe it is designed to catch you out at some point - as, in 10 years time, we do not believe it will be uncommon for people to have pension funds in the million pound bracket and we believe this move is geared to just tax those people who do bother to save more than a token amount. The poor will still save what they can afford and the rich will pay to the limit and then hope for increases in lifetime limits before they are taxed. Learn more in our Pension Simplification Centre.