However, with 33% of people still unaware of the forthcoming changes (according to a recent Mori poll), it's clear that work still needs to be done to ensure staff are fully aware of the pending changes. Our Financial Services Partner, Haines Watts , has provided a special report on the changes, a few of which are listed below.

So what does it mean?

Essentially the changes are an effort to encourage us all to save more for the future and there are a number of significant rule changes for the majority of people. A few of these are summarised below but a more detailed list, compiled by Haines Watts, is available by contacting Lisa Davies on 01494 451 681 or emailing lisa@hradvantage.co.uk

1. Individuals can be members of occupational pensions and personal pensions at the same time.

2. An Annual Allowance figure will be introduced to limit how much can qualify for tax relief in any given tax year. This will be £215,000 in 2006/07 and of this, individuals may contribute, and receive tax relief on, £3,600 or 100% of earned income up to the Annual Allowance.

3. When benefits are taken, up to 25% of the pension fund will be available as tax-free cash, whilst the remaining fund must be used to provide a taxable income.

4. A Standard Lifetime Allowance (SLA) will be introduced, with the ceiling set at £1.5m for 2006/7. Funds over this will be liable for additional tax charges.

5. For funds under 1% of the SLA (i.e. £15,000 in 2006/07), the whole fund can be taken as a lump sum (less a tax charge).

6. There will be no obligation to purchase an annuity by the age of 75.

7. It will be possible to leave the remaining pension fund on death to nominated beneficiaries, or to a charity, even if death occurs after age 75.

Most of the changes are positive. However, for some people, entitlements under the current pension rules may be more advantageous in some circumstances e.g. those with funds that exceed the SLA, or may do, should consider applying for one of the transitional protection arrangements available.

Whether the new rules will really simplify pensions as hoped, remains uncertain but, while not perfect, they do begin to deal with some of the reasons why, as a nation, we do not fund our pensions at the levels really necessary.

For employers, the increased focus on pensions over the coming months should mean that existing arrangements are reviewed and, as a minimum, staff made aware of the potential impact of legislation upon them. In addition contracts of employment and pension scheme literature need to be reviewed if reference is made to old contribution limits and rules.

For a more detailed list of the main changes, compiled by Haines Watts, or to arrange to receive specific advice for your organisation, please contact Lisa Davies on 01494 451 681 or email lisa@hradvantage.co.uk

September 2005