Simplifying the taxation of pensions

As part of the Pre Budget Report on 10th December 2003, the Chancellor Gordon Brown announced the Inland Revenue paper ‘Simplifying the taxation of pensions: the Government’s proposals’(PDF 422K). This builds upon the proposals set out in the earlier consultation document, ‘Simplifying the taxation of pensions: increasing choice and flexibility for all’. The proposals in this document sweep away the regulations and controls associated with 8 different tax regimes and replace them with a single, simple and transparent regime that will benefit everyone.

The key elements of pensions simplification are:

• A single lifetime allowance of £1.4m indexed by RPI for tax privileged pension savings
• An annual allowance of £200,000 for contributions to a tax privileged pension scheme
• Flexible Retirement: people in occupational pension schemes will be able draw retirement benefits while continuing to work
• More flexible rules regarding Annuities