If there was a competition to come up with history's ultimate oxymoron, then we would have to go a long way to beat pensions simplification.
There are 23 pages devoted to taxable property alone, and the rules on tangible moveable property are a fascinating study in the obtuse.
The complexities of the HMRC approach are such that, whilst having the ability to purchase a prison, a member of a pension scheme had better not end up as a guest of Her Majesty, as the result would be a tax bill for the beneficial enjoyment of the stay.
Woe betide the 50 year-old partially crystallising funds in 2009. Benefits crystallised before 6 April 2010 can continue to be paid but no new benefit crystallisation events can take place until the member reaches age 55, for when the rules change in 2010 the member will no longer be old enough to take benefits.
They say that there is the equivalent technology that sent up the first space shuttle in a Nintendo DS device these days, but not even that is sufficient to calculate the complexities of the taxation structure if one dies receiving Alternatively Secured Pension.
Listening to one of my colleagues explain the vagaries of this put me in mind of the complexity of the arrangements for the schoolboys in The Meaning of Life ("before I begin the lesson, will those of you who are playing in the match this afternoon move your clothes down onto the lower peg immediately after lunch, before you write your letter home, if you're not getting your hair cut, unless you've got a younger brother who is going out this weekend as the guest of another boy, in which case, collect his note before lunch, put it in your letter after you've had your hair cut, and make sure he moves your clothes down onto the lower peg for you").
It gets even more Pythonesque when looking at the non-payment of rent where a property, which is an asset of the scheme, is let to the principal or associated employer. If the rent is not paid when due, the Scheme becomes a creditor of the employer and as such should be treated the same as any other creditor.
Should other creditors be given preferential treatment at the expense of the pension Scheme, then the amount outstanding will be treated as an undocumented loan, which in turn would be treated as an unauthorised payment, attracting tax charges of up to 70% (40% on the debtor/company for rent arrears, plus 15% if the rent overdue exceeds 25% of total Scheme value, and 15% on the Administrator, which will be taken from the Scheme). Simple. The decision tree looks like Jackson Pollock let loose on an etch-a-sketch.
Look at the changes to scheme borrowing. If trying to rebroke an existing arrangement in the interests of cashflow to take advantage of softening rates, be mindful that, if the amount exceeds 50% of net scheme assets, not, for example the previous 75% of the value of the property that applied to SIPPs should the borrowing have commenced pre-A Day, then you will fall foul of the simplification demons, and could create a tax liability of 40% on the excess for the client.
When you take account of the fact that commercial property values have fallen appreciably, 50% of a diminished scheme value makes it even more difficult to balance the cashflow equation by shopping around.
Perhaps the most telling complication of simplification is that HMRC now no longer has any discretion. If RDR doesn't succeed in raising professional standards, then perhaps the FSA needs to eschew principles-based regulation in favour of the HMRC approach to creating statute. I jest, but the Revenue wasn't joking when it removed the role of the Pensioneer Trustee.
Post A-day, the top two Nintendo DS games sold are both those "Brain Training" modules so beloved of the commuter. I doubt these algorithmic posers would be sufficient preparation for the simplified world of the pension.
Mark Lisle is compliance manager at Rowanmoor Pensions
The views expressed in this blog are those of the individual.
Have Your Say
To simplify pensions, is very easy, put the clock back to 1996.
Pensions were very simple before May 1997, there was nothing for members to worry about.
Then being funded entirely by Gilts, the members\' assets were guaranteed by the UK Treasury.
Employers could not get at and sell the members\' assets. they were held in trust by trustees, totally safe for the members\' benefits.
Trustees, by law,had to purchase outright a member\'s benefits on retirement, making them totally safe. They were backed by a UK life assurance company officially recognised for the transaction of annuity business. Further backing from the Treasury who issued the Gilts that guaranteed the annuity payments.
Very simple indeed.
Colston Hicks, CardiffIFAonline
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