Pension tax simplification, often simply referred to as "pension simplification" and taking effect from A-day on 6 April 2006 was a policy announced in 2004 by the
Labour
Labour or labor may refer to:
* Childbirth, the delivery of a baby
* Labour (human activity), or work
** Manual labour, physical work
** Wage labour, a socioeconomic relationship between a worker and an employer
** Organized labour and the labour ...
government
A government is the system or group of people governing an organized community, generally a state.
In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government is a ...
to rationalise the
British
British may refer to:
Peoples, culture, and language
* British people, nationals or natives of the United Kingdom, British Overseas Territories, and Crown Dependencies.
** Britishness, the British identity and common culture
* British English, ...
tax system as applied to pension schemes. The aim was to reduce the complicated patchwork of legislation built-up by successive administrations which were seen as acting as a barrier to the public when considering retirement planning. The government wanted to encourage retirement provision by simplifying the previous eight tax regimes into one single regime for all individual and occupational pensions.
Main changes
Broadly the new regime allows considerable freedom in the tax relievable contributions that may be made to pension schemes and the assets in which they may be invested. It also, however, caps the size of tax-favoured pension funds that may be accumulated by an individual. This 'lifetime allowance' was set at £1.6M for 2007–08. Funds accumulated in excess of the lifetime allowance are subject to a tax charge of 55%. Transitional protection provisions were made for individuals who had already accumulated pension funds in excess of this amount.
* Full concurrency – contribute to personal and occupational schemes at the same time
* Single tax regime – one set of tax rules
* Lifetime allowance – Amount of pension over which charges may be levied if you have no protection
* Annual allowance – obtain tax relief on contributions of up to £3,600 or 100% of income, if greater, subject to a maximum
* Alternative secured pensions – possible to avoid purchasing an annuity even after age 75
* Single allowable investment regime – all schemes allowed to hold qualifying investments
The annual allowance for each tax year was set at:
2007–2008: £225,000
2008–2009: £235,000
2009–2010: £245,000
2010–2011: £255,000
2011–2012: £50,000
2012–2013: £50,000
2013–2014: £50,000
2014–2022: £40,000
Tax Year - Lifetime Allowance
2006/07 £1,500,000
2007/08 £1,600,000
2008/09 £1,650,000
2009/10 £1,750,000
2010/11 £1,800,000
2011/12 £1,800,000
2012/13 £1,500.000
2013/14 £1,500.000
2014/15 £1,250,000
2015/16 £1,250,000
2016/17 £1,000,000
2017/18 £1,000,000
2018/19 £1,030,000
2019/20 £1,055,000
2020/21 £1,073,100
In addition to the above changes, employees aged 50 or over can withdraw up to 25% of each of their pension funds as a tax–free lump sum when it comes into payment, whether or not they continue to work. The age at which a pension can begin to be paid was increased to 55 on 6 April 2010.
Member-directed pension schemes
A-Day introduced changes for the two types of member-directed pension scheme,
SIPP and
SSAS. These two different arrangements were largely brought into line with each other, with the following exceptions:
* SIPP would still be managed by an administrator;
* SSAS no longer requires a pensioner trustee;
* SSAS continues to be able to offer loans to a sponsoring employer, although such 'loanbacks' must now be secured against an asset of the borrower.
Registered Pension Schemes Manual – Can a Registered Pension Scheme make a Loan?
/ref>
See also
*Taxation in the United Kingdom
Taxation in the United Kingdom may involve payments to at least three different levels of government: central government (HM Revenue & Customs), devolved governments and local government. Central government revenues come primarily from income ...
*UK labour law
United Kingdom labour law regulates the relations between workers, employers and trade unions. People at work in the UK can rely upon a minimum charter of employment rights, which are found in Acts of Parliament, Regulations, common law and equit ...
*UK pensions
Pensions in the United Kingdom, whereby United Kingdom tax payers have some of their wages deducted to save for retirement, can be categorised into three major divisions - state, occupational and personal pensions.
The state pension is based on ...
* Personal pension
A personal pension scheme (PPS), sometimes called a personal pension plan (PPP), is a UK tax-privileged individual investment vehicle, with the primary purpose of building a capital sum to provide retirement benefits, although it will usually also ...
s
* Self-invested personal pension
A self-invested personal pension (SIPP) is the name given to the type of UK government-approved personal pension scheme which allows individuals to make their own investment decisions from the full range of investments approved by HM Revenue and C ...
s
* Small Self Administered Scheme Small Self Administered Scheme (SSAS) is a type of UK Occupational Pension Scheme.
Schemes are trust-based and established individually, usually by directors of limited companies for specified employees of the company. Since Pension Simplificatio ...
s
Notes
References
*
External links
Association of Member-Directed Pension Schemes (AMPS)
- The principal body for discussing changes involving Member-Directed Pension Schemes.
{{DEFAULTSORT:Pension Simplification
Pensions in the United Kingdom