Simplification is the key - Centre for Policy Studies

Proposal 6: post-retirement, amend access to pension savings
Savers should be free to draw down their pension savings assets as required (taxed
conventionally at the saver’s highest rate), without an annuitisation requirement, provided
that a minimum of £50,000 133 of investments (at the SPA) is not accessed until the age of 75.
Savers who have already secured an income equivalent to 40% of median earnings, say,
from the State Pension, lifetime annuities or guaranteed private pensions, should be exempt.
Proposal 7: annuities purchased with ISA funds should be tax-free
Annuities purchased with ISA-derived funds should be exempt from income tax,
consistent with the tax-exempt status of withdrawals from ISAs.
Proposal 8: permit pension savings flexibility within couples
To avoid the income-in-retirement disadvantage often suffered by women, couples 134
should be able to contribute to one another’s pension savings irrespective of the
recipient’s earned income. Tax relief should be granted at the contributor’s marginal rate,
limited to the amount of tax paid in aggregate by the couple in that year. To limit the
Treasury’s tax relief cost, intra-couple contributions should be deducted from the annual
limit of both parties. Furthermore, assets should be transferable between the couple’s
pension savings, but without tax relief.
Proposal 9: encourage wealth transfer into pension savings
Contributions to pension savings could be permitted without being supported by
earnings, for example up to a limit of £400,000, divided into two sub-limits.
(a)
(b)
£200,000 Primary Residence Limit, from proceeds of the sale of the primary
residence; and
£200,000 Business Sale Limit, from proceeds of the sale of a business.
Contributions made within these limits should fall outside of capital gains and
inheritance tax limits (and the seven year rule should not apply), but they should not
attract tax relief. Each limit should be subject to review every five years, say; the Primary
Residence Limit could, for example, be indexed to average house prices.
Proposal 10: inter-generational wealth transfer between pension savings upon
death, free of inheritance tax
Savers should be able to bequeath unused pension savings assets to third parties free
of inheritance tax (perhaps limited to £100,000), provided that the assets only go into
recipients’ pension savings. Such bequests should not attract tax relief.
133 After deducting the 25% tax-free lump sum that they are entitled to withdraw (net of any pre-SPA tax-free
withdrawal), as per Proposal 5.
134 Including civil partnerships.
51