Government proposals to restrict pensions tax
relief for high-earners could be “complex and impracticable” to
implement, according to an assessment of George Osborne’s first
Budget by law firm Pinsent Masons.
Simon Tyler, Legal Director in the Pensions Group
at Pinsent Masons, says: “We welcome the Coalition’s stated
intention to ensure its proposals are ‘fair, simple and sustainable
in the long-term’.
“However, it’s not going to be easy overcoming the
technical difficulties the government has itself identified. If the
measures were totally fair, they would have to be complex and
impracticable. The challenge is to find a balanced approach.”
In yesterday’s Budget the Chancellor announced that
the government is considering adopting a new approach to
restricting tax relief for high earners. Instead of the complex
proposals put forward by the Labour government, the coalition
government intends to use the existing system of allowances
(particularly the annual allowance) to raise the same level of
revenue as had already been accounted for.
The new annual allowance is likely to be in the
region of £30,000-£45,000. The current "anti-forestalling"
provisions (which are designed to prevent individuals from
increasing their current pension savings now to avoid the future
tax restrictions) will remain in place in the meantime.
The government intends to address the following
technical difficulties, which had already posed problems for
Labour's original proposals:
- How pension accrual in DB schemes would be
measured.
- Ensuring basic-rate taxpayers are not subject to
the restriction, and countering hardship caused by sudden increases
in pension accrual.
- Flexibility for individuals in paying any tax
charge.
- Practical aspects of compliance and delivery.
Government plans to consult on removing the
effective obligation to purchase an annuity by age 75 in 2011 were
also announced. Transitional provisions will apply to those who
reach age 75 in the meantime.
Tyler says: “This is a radical step. The details
may prove more complex than anticipated - unless the coalition is
happy for individuals to contribute to pension schemes to avoid
inheritance tax rather than to save for retirement.”
The government also revealed that its proposed
measures to tackle arrangements seeking to avoid, defer or reduce
income tax and National Insurance Contributions will extend to
unregistered pension schemes (known as Employer Financed Retirement
Benefit Schemes). Legislation will be introduced to take
effect from April 2011.