The package is good. But it is not perfect, and the reasons given for the main imperfection are decidedly suspect. The limits placed on pension contributions for money-purchase arrangements have been a mish-mash. For personal pensions, we have the age-related percentages of salary, from 17.5% to 40%. For occupational schemes, we have limits based on the likely ratio of pension to final salary - a sensible rule for final-salary schemes, but crazy for money-purchase schemes. The government's first thought had been to create a third limit, the flat £3,600 a year, for stakeholder pensions. The good news is, instead of this forest of rules, we are to have a single regime for personal pensions, stakeholder pensions and those money-purchase occupational schemes that choose to opt into it. The contribution limit will be the higher of the existing age-related percentages of salary and £3,600 a year. A lot of people will find this very easy to understand, because they would not save more than £3,600 anyway. And people who do want to save more will be able to choose between personal and stakeholder pensions without worrying about the tax consequences. Not only will there be a single space in which personal and stakeholder pensions will operate, but that space will get bigger as money-purchase occupational schemes take the plunge and exercise their option to join in. Then people will be able to switch freely between all three forms of pension provision. But won't all occupational schemes switch immediately? No, the new rules are not all good news. Some people in those schemes can save more under current rules than they could under the new rules. The continued existence of difficult choices is worrying, but just as worrying is the plan to deprive us of other choices: the options to carry forward unused relief and to relate back personal pension contributions to the previous year. These facilities are useful to people who want to save as much as possible for retirement, but do not know their earnings until after the year-end. A lot of the self-employed are in that position. The new current-year basis of assessment has made things worse: anyone with a 31 March year-end has just five days to work out their profits before the tax year ends. The government says carry-forward and relating-back are complicated to administer and hard to understand. But if you don't understand them, you don't have to use them. And carry-forward could be made simpler not by abolishing it, but by making it more liberal. Carry-forward is limited to six years - that leads to the need for rules on the order in which relief is used up. It also means a taxpayer cannot have a single pool of unused relief brought forward - it must be broken down into years. Why not allow indefinite carry-forward? There could be four simple boxes on the tax return for unused relief brought forward, relief added this year, relief used this year and unused relief carried forward. People with fluctuating earnings are not just at risk from the abolition of carry-forward. They could also suffer from a very odd quirk in the proposals. Someone aged 37 and earning £30,000 a year could contribute £6,000 a year. If they stop earning, they can go on contributing £6,000 a year for five years before they drop down to £3,600. But if they carry on part-time and only earn £20,000 a year, they will drop to £4,000 a year straightaway. So someone with money they wish to transfer to a pension fund can be better off not working at all than working less than before. On the bright side, the self-employed will get some of their tax relief a bit earlier than they do now because they will make contributions net of basic-rate tax. But some employees in occupational schemes will need new higher-rate adjustments to their PAYE codes. So the government's proposals are good, but not perfect. Let's use the consultation process to tell them where improvements are needed. - Richard Baron is deputy head of the policy unit at the Institute of Directors.
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