Pensions overhaul 'needs more work'

The Chartered Institute of Taxation (CIOT) has given cautious approval to coalition ministers’ planned revamp of restricting pensions tax relief, but it has said improvement is necessary before the mooted new rules become established in law.

The professional body this week submitted its response to the Treasury paper Restriction of Pensions Tax Relief: a Discussion Document on the Alternative Approach, which was issued in late July to set out an alternative approach to regulations introduced by the previous administration in 2010’s first Finance Act.

The rules are scheduled to come into effect in April 2011 and have been heavily criticised by many organisations for being excessively complex. The CIOT has claimed that the latest changes are an improvement but include a number of contentious points: an observation previously made by a number of other industry commentators.

There is a need for a fair and practical method of valuing accruals from defined benefit (DB) pension schemes, said the institute, which criticised the lack of a position on hybrid schemes and added that some specific issues relating to overseas schemes should be the subject of a separate review.

‘We have always argued that the original proposals to restrict tax relief would cause disproportionate complexity and significant administrative burdens on individuals, businesses, pensions administrators and HMRC,’ said Colin Ben-Nathan, chair of the CIOT’s employment taxes sub-committee.

‘Our view was (and remains) that lowering the annual allowance can achieve the Government’s policy goals while also maintaining certainty and fairness.

‘While a reduced annual allowance affects more individuals than would restricting the tax relief for individuals with incomes of £150,000 and over, we think the simplicity of a reduced annual allowance has the potential to be fairer, simpler to understand, and minimise the additional compliance burdens placed on employers and pension scheme administrators,’ remarked Mr Ben-Nathan.

Categories: News , CIOT , Colin Ben-Nathan , Investments