The Finance Act 2004 introduces a single simplified tax regime that will apply to all UK tax-privileged pensions from 6 April 2006 (A-Day).
The facts:
- There’ll be one set of tax rules for all pension plans
- You’ll be able to have as many pension plans as you like
- You’ll have a single ‘lifetime allowance’, which will limit the amount of pension savings you’ll receive tax relief on. This allowance will cover the pension savings you have to date as well as the savings from any plans you join in the future. At A-Day the lifetime allowance will be £1.5 million.
- A maximum ‘annual allowance’ of £215,000 will be introduced at A-Day. If you earn pension benefits of more than this in any one tax year the excess will be subject to tax.
- You’ll receive tax relief on your own contributions up to 100% of your earnings, subject to the annual allowance.
- All pension plans can offer up to 25% of the capital value of your pension savings (up to the lifetime allowance) as a tax-free cash sum.
- The minimum pension age will increase from 50 to 55 for retirement on or after 6 April 2010
If your pension savings exceed the lifetime allowance when you retire, you’ll pay 25% tax on the excess as well as income tax on your pension.
More information will follow over the coming months as regulations are finalised. We’ll also keep this news area updated with the latest announcements.
