Scottish Equitable is warning pension specialist IFAs that changes to tax free cash under additional voluntary contributions (AVC/FSAVC) could have a significant impact on the advice they give to clients.
The changes are being considered as part of the pensions simplification review, undertaken by the Inland Revenue and the pensions industry.
AVC/FSAVCs set up post-1987 do not offer tax free cash but their existence can lead to a better calculation of tax free cash in the main scheme. However, stakeholder and personal pensions offer 25% of the fund as tax free cash when the benefits are taken, excluding any protected rights element.
According to Scottish Equitable, if tax free cash is to be introduced on AVC/FSAVC it could be backdated to 6th April 2001 in order to tie in with the start of the new DC tax regime. This means that people using partial concurrency to pay extra contributions into stakeholder or personal pensions might wish they had put that money into an AVC/FSAVC.
Stewart Ritchie of the pensions development team at Scottish Equitable added: “There are a number of outstanding issues that will need to be resolved before we have the full picture. For example, how will contributions after 6th April 2001 to pre-existing AVC/FSAVC be affected? We’ll have to wait and see the outcome of the Inland Revenue review before we can answer all the questions but as a starting point IFAs should be aware that the review is taking place.”
In 2000 the combined AVC/FSAVC IFA market in the UK was worth £118m, up £2m on 1999.
By Madhu Kalia
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