There will be a number of changes to pensions legislation, which will take place from April 2011. This is as the result of a recent government consultation into the issue. Yet again, we have further changes and complication in the areas of pensions and retirement.
From this date, unsecured pensions (USP or drawdown) and alternatively secured pensions (ASP) will be replaced by a capped drawdown unless the pensioner can prove that they have an income from other sources of at least £20,000 pa. If so, they will be eligible for flexibile drawdown.
The end of complusory annuities
You will no longer be forced to take an annuity at age 75. Instead you can entre or continue with drawdown as set out below.
You will no longer be forced to take an annuity at age 75. Instead you can entre or continue with drawdown as set out below.
Capped drawdown
Under these rules, the maximum allowable income will be 100% of that allowable under Government Actuarial Department rules (GAD). This is a reduction from the level fo 120%, which is currently allowable. Reviews on these rates will need to be undertaken every 3 years rather than every 5 years at the moment. If you enter unsecured pensions before the change in the rules you will lock in the income taken for the next 5 years.
Under these rules, the maximum allowable income will be 100% of that allowable under Government Actuarial Department rules (GAD). This is a reduction from the level fo 120%, which is currently allowable. Reviews on these rates will need to be undertaken every 3 years rather than every 5 years at the moment. If you enter unsecured pensions before the change in the rules you will lock in the income taken for the next 5 years.
After age 75, this will change to every year. The minimum income allowable will be nil. This is a change for those aged 75 or over, who currently must take 55% of the allowable income.
Flexible drawdown
If the pensioner can prove an alternative income of £20,000 pa he can elect to enter flexible drawdown. This means that you can withdraw as little or as much as you like from the pension scheme without any review period or maximum. The only difference is that members would not be allowed to make furter pension contributions once in flexible drawdown. Also, protected rights (S2P) benefits are not permitted in flexible drawdown.
If the pensioner can prove an alternative income of £20,000 pa he can elect to enter flexible drawdown. This means that you can withdraw as little or as much as you like from the pension scheme without any review period or maximum. The only difference is that members would not be allowed to make furter pension contributions once in flexible drawdown. Also, protected rights (S2P) benefits are not permitted in flexible drawdown.
Tax free cash
You will be allowed to take tax free cash from any age 55+. This is a change to the current rules which state you must take your tax free cash by age 75.
You will be allowed to take tax free cash from any age 55+. This is a change to the current rules which state you must take your tax free cash by age 75.
Death benefits
The tax payable on benefits paid to your family after you die, once you have entered drawdown, will change. Currently, tax is paid at 35% on lump sum payments to your beneficiaries up to age 75; after 75 this is 82%. The new rules will change this to a uniform 55%.
The tax payable on benefits paid to your family after you die, once you have entered drawdown, will change. Currently, tax is paid at 35% on lump sum payments to your beneficiaries up to age 75; after 75 this is 82%. The new rules will change this to a uniform 55%.
The annual allowance
The amount you can pay into a pension plan in one year has been reduced to £50,000 (from £255,000). Tax relief will not be payable on contributions over this amount. However, you will be allowed to carry forward unused annual allowance for 3 years. If you were restricted on your payments because of earning over £130,000, these restructions will no longer apply, and you will be permitted to make up the difference if you choose.
The amount you can pay into a pension plan in one year has been reduced to £50,000 (from £255,000). Tax relief will not be payable on contributions over this amount. However, you will be allowed to carry forward unused annual allowance for 3 years. If you were restricted on your payments because of earning over £130,000, these restructions will no longer apply, and you will be permitted to make up the difference if you choose.
Dan Woodruff is a Certified Financial Planner based in Colchester, Essex, UK. He regularly writes articles on financial planning and investment management aimed at UK business owners and investors. Go to http://www.woodruff-fp.co.uk to find more content, or sign up for his free newsletter or financial planning blog. Woodruff Financial Planning is authorised and regulated by the Financial Services Authority. |
