After A-day, the date at which the Government intends to implement its pensions reforms, contributio...
After A-day, the date at which the Government intends to implement its pensions reforms, contributions to retirement annuity contracts (Racs) will have to follow the same rules as for all other pensions.
Currently, Racs use a different calculation to determine the eligible tax-free lump sums, based at present on three times' residual annuity. As this calculation depends on annuity rates, which are currently at historic lows, the switch to the same 25% calculation used by personal pension could be seen as more attractive.
Alasdair Buchanan, communications director at Scottish Life, said it may now appear more generous because of interest rates but there is the potential to lose out should interest rates rise to a level where the previous calculation was more beneficial.
Buchanan said there also remains questions over what the Government intends to do with Section 32 policies, as the Inland Revenue's proposals appear confusing.
The Government is looking at the possibility of requiring life offices to provide new buyout policies under an approved scheme, rather than making them free-standing, as is the case at present.
In the Revenue's tax paper it states that benefits from pre-A-day buyout policies are to count towards the lifetime limit of £1.4m per individual attracting full pension tax breaks.
This is confusing because, elsewhere, the Government has stated that pre-A day benefits in other schemes will be able to be set aside and not count towards the £1.4m lifetime limit, Buchanan said.
One clarification Scottish Life is seeking concerns what the approved scheme replacing Section 32s might be, as this may contain some explanation for the seemingly contradictory statements.
The Government intends further consultation on most of the issues included in the paper in 2003.
Legislation to implement the new scheme could then be included in the 2004 Finance Bill. This could allow A-day to be 6 April 2004.
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