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Last week the Government launched its Office for Tax Simplification, announcing that the new department will be led by former Conservative Treasury minister Michael Jack. As part of their plans to simplify the current tax system, proposals have been put forward to restrict pensions tax relief. In their consultation document, published yesterday the government set out a number of suggestions:

• Implementation of an annual allowance for pension contributions of £40,000 which could be indexed.
• They would like to raise the current flat rate factor from 10 to between 15 and 20.
• They are keen to cut the lifetime allowance from 1.8 million to £1.5 million in the hope that it will create the possibility of indexing the annual allowance over the longer term.
• They propose a cap on tax relief at 40 % on savings below the annual allowance in the hope that this will bring in an extra £500 million a year in revenue.
• They are considering the introduction of a Minimum Income Requirement (MIR) for more flexible pensions which will involve an individual demonstrating a sufficient level of secure income.
• Also being consulted is the possibility of making major changes to income drawdown arrangements and the rules that govern them. The main potential change concerns the increase in taxation of death benefit lump sums, from 35% to 55% and clients may well require further advice in this respect.

The Government has however ruled out the introduction of an age related factor to calculate accruals to defined benefit pension schemes.

As a result of the proposed changes to income drawdown in particular, Financial would advise you, under TCF rules, to contact all of your income drawdown clients and notify them of the possible changes. Financial can provide a template letter for this very reason which can be found on the document library.

These proposed changes are subject to decisions made as part of the next budget. But we want to know what you think about them? Will they improve the situation for you and your clients? Will these proposals simplify the tax system? Which proposals are necessary and which are not? Join the discussion and have your say...

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