In comments made to the Department for Work and Pensions and the HM Treasury/Inland Revenue submitted today, the ACT welcomes the Government's attempt to simplify the taxation of pensions and its proposals to replace the numerous complex existing regimes by a single unified approach, giving individuals clearer simpler choices making it easier to set up and run good pension schemes.
Among the points made to government were:
The lifetime cap concept represents an enormous potential simplification of the current regime.
However, as currently structured - a limit on benefits - the cap fails to meet the Government's aim for clear choices. Individuals cannot not know in advance how their investments will be taxed. If the lifetime limit is based on contributions made into the scheme the necessary certainty is provided. A contribution limit would also allow two significant additional simplifications: the annual contribution limit and annual limit on an individual's relevant earnings for the year would be unnecessary.
Removing annual limits would also mean that those taking a career break, perhaps following redundancy or education or other purposes, could continue to make tax effective contributions during a year when they received little earned income but may have investment income or other savings to permit continued contribution to pension savings.
The ACT supported the mooted Central Clearing House for purchase of annuities and the idea of limited insurance of pension schemes' liabilities to members.
Insurance, as well as bringing a desirable stability to pensions arrangements, would necessarily involve the insurer in some oversight of scheme arrangements and investments. A long-stop back up of the insurer from the taxpayer would be necessary to avoid difficulty in case of systemic problems. In order to reduce the risks of systemic problems, there should only be minimum restrictions on scheme investments both as regards type of investment or geographic distribution of investment.
It would be important for the insurer not to provide any cover in respect of unfunded obligations previously accrued.
Pensions can be seen as deferred remuneration and contributions deducted from wages and salaries (and corresponding employers' contributions) should have similar priority to unpaid wages and in any case not rank below secured creditors.
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Members of The Association of Corporate Treasurers (ACT) work closely in an executive capacity with their company Board, acting as the custodians of the risk management process; in a non-executive capacity they work, along with the rest of the Board, to set the risk management framework.