UK - Inland Revenue plans to revamp the tax system will cost pension schemes up to £2.5bn, it can be revealed.
Hewitt Bacon & Woodrow estimates the proposals will cost individual schemes £5000 to £25,000, depending on the degree of change required.
Hewitt administration business development manager Geraldine Brassett said: “The extent of these initial costs will obviously vary depending on scheme design, the age and capability of the current administration platform and the changes in communication around processes.”
Diageo UK pensions administration manager Paul Charles said that the scheme was bracing itself for a one-off cost of up to £128,000 and for administration costs to rise £30,000 per year thereafter.
These ongoing costs will be equivalent to approximately 50p for each of Diageo’s 70,000 members.
Charles explained: “The cost increases are based on offering a full service for all active members who wish to understand the value of their current rights and previous rights with other employers.”The planned tax changes include:
- The abolition of the existing tax regime for pension funds.- A single lifetime limit of £1.4m.- An annual limit on inflows of £200,000 and a single set of rules on pensions in payment.
The government wants the changes to take effect from 2004.
Mercer Human Resource Consulting European partner Barry Mack explained that if an employer only wanted to take advantage of tax simplification, the administration costs would be at the bottom end of the scale.
But he warned that if they wanted to introduce flexible retirement arrangements, the ongoing costs might go up and changing the system to cope with the new service would require yet more change to systems. This would push the scheme’s expense toward the higher end of the cost scale.
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