UK - Controversial plans to tax lump sum commutation payments will form a major part of the Inland Revenue's review on pension reform.
But it is planning to sweeten the pill by giving more generous tax allowances on contributions, according to sources close to the Revenue.
One source said: “The only area that hasn’t been taxed so far is lump sums – so this is, logically, where the Revenue will strike next. The government has always hated the idea of people getting tax-free sums on retirement.”
Pension funds have lambasted the proposals and believe they will be “seriously detrimental” to the future of occupational pensions provision.
NAPF benefits manager Paul Barton said: “Tax relief is one of the things that keeps pension schemes attractive. If you took this provision away, people are likely to favour ISAs where they can take their cash when they wish.”
And pensions advisory service OPAS warned that any move from the Revenue to tax lump sum payments would dash the hopes of many people who are reaching retirement age.
Chief executive Malcolm McLean said: “The government has had its beady eyes on taxing lump sum payments for years. To change policy in a stroke would cause problems for all sorts of people. It would mostly hurt those people who have made their plans for retirement.”
McLean added: “We are looking for radical changes in the review, but this is one that will not be popular.”
The Inland Revenue refused to comment.
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