Reader Q: If the Chancellor attacks pension tax free cash when would the changes take effect?

2 min Read Published: 29 Feb 2012

Get an answer to your financial question online Reader Question:

If the Chancellor were to tax retirement lump sums in the budget on March 21 how long would it take to bring this policy into practice?

regards,

Alan

 

My response:

Technically any changes could be made immediately. For example, the anti-forestalling changes to pension contributions back in 2009 (which effectively limited the annual limit for tax relieved pension contribution at the highest rate for people earning over £150,000) took immediate affect. But while the changes to pension rules could take effect immediately the key point would be how any tax would be applied (i.e. would it be applied to new pension money, or applied retrospectively).

While the Chancellor could backdate any changes it would be extremely unpopular and a big vote-loser.

Alternatively, he could try and just apply any changes to new pension money going forward but then this would be a logistical nightmare as pension benefits would have to be split into two parts in order to apply any tax charge.

Perhaps it would be simpler to just abolish tax free cash altogether if he were to tweak tax free cash lump sums but the uproar would be enormous and also undermine the new auto-enrolment plans.

To sum up the chancellor could make any changes immediately and as he sees fit.

I hope that helps.

Damien


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  1. Thanks for your reply Damien.
    Food for thuoght.
    I was unaware of the strategies that the chancellor could apply to lump sum tax.
    As you say the simplest way would be to abolish tax free lump sums. Yes it would cause an uproar but then he has some more budgets to come before the next election and a chance to ‘butter up the voters’
    regards
    Alan

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