Paul Leatherbarrow, Liverpool
The Government recently published changes to compulsory annuitisation and income drawdown which comes into effect from 6th April 2011 As of 6th April 2011 you will no longer be forced to buy an annuity at the age of 75. Changes to drawdown plans Income limits reduce from 120% GAD (Governments Actuary Department) to 100% GAD income and must be reviewed every three years (yearly from age 75) which is presently every five years. The new limits will only apply from the next review date so reviews before 6th April 2011 can keep 1205 GAD for the next five years. If funds are crystallised before April you can retain 120% GAD Income for 5 years continue to take 0% GAD or switch on 120% GAD at any point in the next 5 years Capped and Flexible Drawdown The terms unsecured pension (USP) and alternatively secured pension (ASP) are to be replaced with drawdown pension there will be two types of drawdown pension; capped and flexible. Both will be available from age 55 (earlier if have protected pension age) Capped drawdown Replaces ASP and USP, you no longer have to crystallise your pension savings at 75. There is no minimum income age after 75 which is consistent with the present rules for the under 75’s. As mentioned above the maximum income will be calculated as 100% of the comparable annuity Reviews of the maximum income will be required every three years up to 75 every year after 75. So the 1005 limit applies to current ASP customers from their review date following 6th April 2011. You will be allowed to stop taking an income from this date if you desire The new limit will take place at the earliest of the following events post 5 April 2011 • The fifth anniversary of the most recent review • Following a 75t birthday the next anniversary of the most recent review • Following transfer to another drawdown provider the next anniversary of the most recent review For customers whose 75th birthday was between 22nd June 2010 and 5th April 2011the change takes effect from the start of the next drawdown pension year to begin on or after 6th April 2011 because they are subject to the interim rules allowing to be left to age 77 Flexible drawdown Allows those who meet a minimum income requirement to take income without limit from their pension savings. Initially it will be set at an income of at least 320,000 this will be referred to as the minimum income threshold. (expected to be reviewed every five years) Relevant income is defined as: • A scheme pension or dependents scheme pension • A lifetime annuity or dependents lifetime annuity • Payments from an overseas scheme which if the scheme were a non UK scheme would fall within above • Some payments that are received from the state. Defined as any pension, or allowance under section 577 of the income tax act 2003. Which includes state pension, graduated retirement benefit, industrial death benefit, widowed mothers allowance. Widowed parents allowance and widows pension Drawdown income as an individual or as a dependent payable in the UK or from an overseas scheme does not count as lifetime pension scheme. The income has to be already in payment. Income taken using flexible drawdown will be taxed at an individual’s marginal rate of tax. • No further pension savings will be allowed for those using flexible drawdown • You have to stop being an active member of any defined benefit or cash balance arrangement before using flexible drawdown. • For defined contribution arrangements they can not contribute any money tax-efficiently in the tax year that flexible drawdown is being used and any further years. • The annual allowance charge will apply to the value of all new pension saving after flexible drawdown has been used. • Once pass initial MIR assessment do not need to be checked again • If use flexible drawdown and become temporarily resident abroad will be taxed on all withdrawals if return to UK within 5 years • Pension providers will need proof you satisfy MIR before allowing flexible drawdown may be simple written declaration Tax on lump sum death benefits The tax charge payable on death, where a lump sum is taken for drawdown customers, who are under 75 changes from 35% to 55%. This applies to crystallised and un-crystallised money on death on or after 75. There is no tax charge on death where pension savings are used to provide benefits other than as a lump sum to dependents. Can pass on to charities tax free if no living dependents are available and extended to those over 75 Contributions after age 75 No tax relief is available on any contributions after age 75 Lump Sums Tax free cash, triviality lump sums, wind up lump sums, annuity protection lump sum death benefits and pension protected lump sum death benefits can be paid after age 75 . Serious ill health lump sums taxed at 55% can be paid for over 75s The information provided is based on our understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation. To speak to a Stirling House Independent Financial Advisor, get a quote or request a call back at a more convenient time click here www.stirlinghousepensions.co.uk
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