Last month the Institute’s Northern Ireland Tax Committee submitted a response to the HM Treasury consultation Freedom and Choice in Pensions. The Institute is broadly supportive of the proposals in the consultation and uses the Irish experience from 1999 onwards as providing supporting evidence that a maximum statutory override is not needed to prevent the so called “Lamborghini” situation occurring.

The consultation proposes that from April 2015 individuals will be able to access their defined contribution pension savings as they wish during retirement, subject to their marginal rate of income tax. The 25% tax free lump sum will continue to be available. The consultation also outlines the government’s proposals for changing the tax rules to allow this and for introducing a guarantee that everyone with a defined contribution pension will be offered free and impartial face-to-face guidance on their financial choices when they retire.

In the Committee’s response to the consultation we reiterate that in many other countries the government does not impose restrictions on how people access their pension savings at the point of retirement and savers are trusted to manage their own finances. It is equally important not only to give individuals more choice over the application of their pension pot at retirement, but also to encourage pension savings. Hence the Committee also calls for no further reductions in the current pensions annual allowance or lifetime limits as this would serve only to discourage pension savings.

The Committee also stresses the need to amend the current 55% tax charge introduced in 2011 for pension funds held at death. In short, should this remain it could encourage individuals to take all their cash upfront or drawdown the majority in the early years of retirement in order to benefit from a lower rate of income tax.

The Committee’s response is published in full on page 21.