There seems to be real concern about reform of pensions taxation, as lack of clarity on rules and regulations are confusing matters rather than simplifying understanding.
While the government is keen to show the electorate it is thinking about the future of pensions, it has a habit of announcing big ideas without supplying any of the detail needed to help the industry advise clients and companies who already have pensions packages.
One of the biggest issues over the last month which companies are struggling to get any clear answers to is the tax implications of Sipp investments and what can actually be invested inside the pension wrapper before and after A-Day.
So far, IFAonline has been able to ascertain the Revenue will not issue guidance on whether the deposit for an off-plan residential property investment – an investment rather than a property purchase - can be invested through a Sipp prior to April 6, 2006.
Standard Life has been told it’s not allowed until A-day, other advisers and property experts believe it is possible, and the Revenue says it will only issue guidance on a case-by-case basis.
Elsewhere, other firms are struggling to confirm exactly what type of investments will benefit from tax efficiency inside a Sipp, as again the Revenue will only offer guidance on a case-by-case basis.
A worrying pattern is beginning to emerge which suggests in order to be sure the IFA has correctly advised the client on Sipp investments and their tax implications, they need to run each case past the Revenue first.
While the cynics among us would say this is yet another chance for the Revenue to snoop inside and log yet more detail of everyone’s financial affairs, this surely raises the question ‘how is pensions simplification being simplified if every case has to be checked to make sure it won’t later carry a tax liability?’
This does not even address the destabilising effect the confusion could have on the client’s confidence in their financial adviser, as the Revenue’s lack of information on Sipp taxation could suggest to the outside world the expert adviser is incompetent and no longer knows what they are doing.
The whole point of simplification is to make it easier for people to invest and understand exactly how the system works, what they can and cannot do. Yet any adviser trying to help clients at present prepare their pension arrangements ahead of next April is likely to hit more questions than answers.
This whole affair is worrying officials in the personal finance industry because along with the complexity of contracting-out – which again is no longer a straight-forward process – pensions simplification is becoming so complex advisers fear they will end with another mis-selling review no matter what they advice they give.
With just over a year to go, if the Revenue cannot provide publishable answers on the tax treatment of pensions, the industry perhaps needs to stage another forum similar to that gathered in 1998, when pension experts and IFAs laid down commercial sensitivities to openly discuss how to handle the creation of stakeholder pensions.
At least then every company will be able to share the feedback it has had on differing cases and hopefully find a consensus which everyone can work from.
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