Personal Pensions
Since the pension law changes in April 2006, it is important to obtain specialist advice, particularly if you are considering making any changes to your existing arrangements. Contact us for valuable experience and advice on:
Income Drawdown
Annuity Purchase
Self Invested Personal Pensions – SIPP's
Executive and Director Schemes
For alternative Retirement Options advice, please contact our specialist adviser Samantha Hayes or email her. samantha.hayes@calexander.co.uk
Budget changes
Pension funding
The majority of pension savers are not affected by the changes and can continue their pension provision as normal. Personal contributions up to 100% of earnings will continue to get tax relief at the savers highest rate. Total contributions (employer and employee) can be made in a tax-efficient way, up to the current annual allowance of £50,000.00 (2011/12), reduced from the previous £255,000.00 (2010/11).
It may also be possible to carry forward unused allowances from the previous three tax years into 2011/2012.
The previous anti-forestalling rules, to prevent £130,000+ earners receiving higher rate relief on pension savings above a certain limit has been abolished.
Pension Income
There are many changes in relation to pension income, the most radical being that there is no longer a requirement to purchase an annuity with a pension fund, previous rules dictated that an annuity must be purchased by the age of 75.
In the main, there are two traditional methods of receiving pension income, either purchase an annuity or income drawdown.
With an annuity, you exchange your money purchase pension to buy a lifetime annuity that will pay up to 25% of the fund (or possibly more, where transitional protection applies) as a tax-free lump sum and the remainder will secure a pension income through an annuity. There are many payment options and a spouses pension can also be included. There is also a guaranteed income option of upto 10 years and/or a ‘value protected’ annuity, offering a maximum lump sum death benefit of the purchase price less the pension paid, less 35% tax for death prior to age 75 (though a lower percentage of the purchase price could be protected). Once the parameters have been set, they cannot be changed, although an alternative is a flexible annuity, i.e. investment linked.
Annuity rates differ so it is always best to ‘shop around’, many factors are taken into account including lifestyle habits and previous and current medical conditions. Gender is currently a factor, with men gaining a higher rate than women, however this is subject to change when it will become compulsory to offer unisex rates.
Income drawdown is an alternative to an annuity but this type of pension income isn’t for everyone. Essentially, income drawdown means that the pension can be paid from the fund rather than having to purchase an annuity. Income drawdown means you have considerable flexibility over the amount of pension that can be paid and at the time you elect to take your pension, the maximum pension available will be determined by a set of tables published monthly by the Government Actuaries Department ("GAD"). There is no minimum pension, so income can be set at nil and the level received can be anywhere between nil and the maximum. With effect from 6 April 2011, the maximum income has been reduced from 120% of GAD to 100% of GAD.
This type of plan is now known as ‘Capped’ income drawdown and the level of income will be re-set every 3 years when the plan must be actuarially reviewed (previously every 5 years) and at age 75, there is no longer a requirement to purchase an annuity or move into an alternative type of drawdown (ASP), but the plan must be reviewed annually.
The Government have introduced another type of income drawdown, known as ‘Flexible’ which basically allows you to take uncapped amounts of pension income as long as a guaranteed annual income of £20,000.00 is being received, in the form of a scheme pension or annuity.
Death benefits have also changed and upon death, a spouses or dependents pension can be provided or a lump sum less tax at 55%.
Pension fund limit "Lifetime Allowance"
There is currently a limit to the amount that anyone can accrue pension provision over their lifetime which is known as the lifetime allowance, any amount above the lifetime allowance will be subject to a tax charge (currently 55%).
The allowance for 2010/11 and 2011/12 is £1.8 million, however it is being reduced to £1.5 million for 2012/13. Protection can be provided for anyone likely to breach the limit however applications must be made before 6th April 2012.
Bases, levels and reliefs from taxation are subject to change.