Scottish Life have warned that the only way that the government can stop the recycling of tax-free lump sums back into pensions and getting tax relief again is by banning tax free cash. They have said that neither the Government or the financial industry has found a way to monitor whether pension contributions are genuinely from income, and believe that an alternative to getting rid of tax free cash would be for advisers to monitor the sector.
The Financial Services Authority and the Treasury both do not see how this could practically be policed without undermining much of pension simplification, which is due later this year.
Our view
Is this really such a major problem? The more money recycled, the greater the amount that buys annuity or other income - and both are TAXABLE!!