Currently, the Inland Revenue operates eight different pension tax regimes for pensions. The proposals would scrap all of these and replace them with just one set of rules.

Two primary rules would replace the present labyrinth of contribution and benefit limits: the maximum contribution into a pension by an employer and an employee in any one year would be £200,000, but employee contributions would be limited to 100% of their salary (or £3,600 if that is more).

The maximum total pension benefits or fund available to provide retirement benefits without tax penalty would normally be £1.4m. Both the contribution and fund figures would be index-linked to prices. However, the size and shape of existing benefits worth over £1.4m would be protected.

The new regime would apply to new and existing pension scheme members and pension policyholders from a future date, probably 6 April 2004.

The concept of a normal retirement age would disappear. However, the minimum age for drawing benefits would rise from today’s 50 to 55 probably by 2010. The upper age limit at which pension benefits must be taken would remain at 75.

The rules which prevent a member of an occupational scheme drawing a pension while remaining in employment would be scrapped. Gradual retirement would therefore become a more viable option.

All pension arrangements would allow a maximum of 32% of their value to be taken as a tax-free lump sum, unless a higher tax-free cash sum has been protected. If you are a member of an occupational pension scheme or contribute to AVCs, the proposal could mean, more cash at retirement than the current rules allow.

The structure of income in retirement would change. The proposals include the replacement of pension fund withdrawal (income drawdown) rules with a more flexible system that could apply to all pension arrangements. New types of annuity would also be permitted, including one that gives you some capital protection on early death before 75.