Anyone applying for a pension under the tax regime to be introduced in 2001 will have to provide pro...
Anyone applying for a pension under the tax regime to be introduced in 2001 will have to provide proof of residency if they are not earning
Currently, no residence information is required for existing personal pensions due to the net relevant earnings test, which reveals where an individual has been earning
The document issued by the Inland Revenue and the DSS two weeks ago said that because the link between earnings and making pension contributions was being broken, the Government would have to create a residency test
If anyone who is not earning ceases to be a UK resident they can still continue to make contributions of up to £3,600pa for five years after the date of their departure
For those who are making pension contributions from earned income, no residency test will apply. If they then decide to cease work the Government proposes allowing them to continue making contributions, including amounts above £3,600pa, for five years after the year in which earnings cease. The upper limit will be based on the highest relief available, by reference to both age and earnings, in either the year of cessation or in the two immediately preceding years. After five years, contributions will be limited to £3,600pa only
This flexible break from earnings will open up the pensions market to people who have previously been prevented from saving for their retirement
Martin Watt, pensions marketing consultant at Lincoln, said the move would offer significant benefits for people taking a temporary break from employment but who have the resources to keep contributing to their pensions, such as mothers taking time out of work to rear children
The Government's proposal should benefit carers, mature students, those on career breaks and the unemployed or recently divorced who may have a lump sum to put into a pension. Some will be able to use savings or gifts received, such as an inheritance, to build up their pensions even though they have no earnings of their own
Removal of the link between earnings and contributions also reduces a major administrative burden on providers of having to obtain evidence of earnings or employment when opening a pension, leading to lower provider costs
Watt said: "The new rules will simplify administration because we will not need to be carrying out checks to clarify people's earnings because of the £3,600 limit
Peter Jordan, pensions manager at Skandia Life, said many people will not be in a situation to use the opportunity the abolition of the earnings link will create, but said the change is to be welcomed because it opens up pensions for a new group of people, although it could be more beneficial to higher income earners
He added: "It could be a valuable tool for the well-off rather than the poor. For example, a wealthy person could put money into pensions and enjoy tax savings via their children at university or non-working partner
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