Section 74 Finance Act 2004

Section 74 Finance Act 2004: A Summary

Section 74 of the Finance Act 2004 introduced significant changes to the taxation of pensions in the United Kingdom, marking a pivotal moment in pension legislation. It fundamentally altered the previous regime, shifting from a system of approval by HM Revenue & Customs (HMRC) to a more permissive, registered pension scheme framework.

Prior to the Finance Act 2004, pension schemes had to meet specific HMRC approval criteria to qualify for tax relief. Section 74 abolished this system of approval and replaced it with a regime where schemes are registered with HMRC. Registration brings with it certain obligations and responsibilities, but it also provides access to tax advantages. The primary aim was to simplify the pension system, promote greater flexibility, and encourage individuals to save for retirement.

One of the most significant aspects of Section 74 was the introduction of the “registered pension scheme.” This new category encompassed a broader range of pension arrangements than were previously recognized under the approval system. This included personal pension schemes, occupational pension schemes, and stakeholder pension schemes, all unified under a single regulatory framework.

Furthermore, Section 74 outlined the conditions for registration. To become a registered pension scheme, the scheme had to satisfy specific requirements relating to its governance, administration, and compliance with tax rules. This included the appointment of scheme administrators, the maintenance of accurate records, and adherence to HMRC reporting requirements. Registered schemes were then granted access to significant tax reliefs, notably tax relief on contributions, tax-free growth of investments within the scheme, and tax-free cash withdrawals (up to a certain limit).

The Act also addressed the issue of unauthorized payments. While the intention was to liberalize the pension system, Section 74 established strict rules regarding what constituted an authorized payment from a registered pension scheme. Payments that did not meet these criteria were classified as unauthorized payments and subjected to significant tax charges. This was intended to prevent abuse of the tax reliefs associated with registered pension schemes.

Section 74, in conjunction with other provisions of the Finance Act 2004, ushered in the “A-Day” on April 6, 2006. This date marked the implementation of the new pension regime and represented a watershed moment in UK pensions history. While the framework established by Section 74 has been amended and refined since 2006, it remains the foundation of the current system, demonstrating the lasting impact of this piece of legislation on the taxation of pensions.