We probably already knew that we would get little or no help from the State with our pensions but the last few days have really hammered the point home. We think it would be helpful to list what remains of the proposed A Day changes to pensions coming next April. Please let us know if you think you will be effected by any of these. Oh by the way - Happy Christmas to you and yours from all at Argyle.
There will be lifetime limits of £1.5 million applied an individual’s aggregate pension funds. This limit will increase to £1.8 million by 2010/11. The limit will then be reviewed every five years. People who already have exceeded this limit may obtain protection, provided they take action.
For people in defined benefit (final salary) schemes, a single conversion rate of 20:1 (regardless of sex, age or state of health) will be used to convert those annualised benefits to check against the lifetime limit.
The maximum tax-free cash lump sum will be 25% of the fund at retirement for all types of pension arrangement. This therefore will now include AVC’s and FSAVC’s (which previously did not directly give rise to tax-free cash.
Individuals who currently have rights to better than 25% tax-free cash under a Section 32 buyout policy or occupational scheme do not need to register it (subject to 6 below) but WILL see those rights reduced back down to 25% if they subsequently transfer to an alternative provider (unless it is part of a block transfer).
Individuals in company schemes who have already achieved tax-free cash rights that exceed £375,000 may protect their figure by registering it under primary or enhanced protection rules.
Individuals can contribute the greater of 100% of their earnings or £3,600, each year, and receive full tax relief on those contributions, at their highest marginal rates, up to £215,000, increasing to £255,000 by 2010/11. Total contributions from an individual and their employer which attract income tax relief for the employee will likewise be £215,000, with a 40% tax charge on the employee on any excess.
Income Drawdown (to be known as "Unsecured Income") rules are to be relaxed, (and will apply to existing plans).
The compulsion to take out an annuity at age 75 with all an individual's remaining pension funds is being relaxed so that a person may take out an Alternately Secured Income (ASI) plan. Moreover, this may be placed under a Family Trust so that upon death, family members can receive the assets into their own pensions.
The minimum age that benefits can be taken will rise from 50 to 55 by 2010.
A scheme may pay up to £1.5 million tax-free as a lump sum on death before taking benefits. Any surplus will attract a 45% tax charge. Dependents’ pensions could also be paid in addition.
"Trivial" pensions rules: Currently, where an annuity on a separate pension is quoted at less than £260 per year, then it may be taken as a lump sum (subject to a tax charge). This can apply to pensions from more than one employment. After A-Day the new limit of £15,000 fund value (as an aggregate of all trivial pensions) should mean that more people can take their benefits as a lump sum. |
