UK Simplifying Pension Tax System

March 17, 2004 ( - The United Kingdom is wrapping defined benefit and defined contribution plan tax schemes in the country into a single package.

The proposals, announced as part of the UK government’s annual Budget statement, would simplify the current tax regime that outlines eight different tax structures for retirement plans.   The octet of tax policies often creates confusion between the amount individuals can pay into and receive from retirement plans, according to a Dow Jones report.

If approved, the single tax system for all retirement systems would be introduced April 2006.

Under the proposals, there will be a single lifetime allowance on the amount of pension savings that can be stored up without being taxed. This will be set at GBP1.5 million in 2006, rising to GBP1.8 million by 2010.

Additionally, one set of rules would be adopted outlining where pensions can invest.   The investment guidelines will allow pensions to invest in every type of investment, as opposed to the current system that places restrictions on UK retirement plans as to how much they invest in certain asset classes and in what proportions.