Did I hear more change in the world of pensions?

Another month, another set of changes in pensions, so to keep you up to date here is our snapshot of the key changes-

State Pension age increasing – it has been proposed that the age at which you can begin drawing your State Pension will be increased to age 66 by April 2020.

Contracting Out of the State 2nd Pension Scheme – you will no longer be able to contract out of the State 2nd Pension Scheme on an money purchase basis (e.g. Personal Pension Plan) after 6/4/2012. If you are still contracted out on 6/4/2012 you will automatically be contracted back in to the State 2nd Pension Scheme from that date.

Annual Allowance - the maximum amount that you and your employer can contribute to a pension arrangement each year without incurring tax penalties is being reduced from £255,000 to £50,000.

Another month, another set of changes in pensions, so to keep you up to date see our snapshot of the key changes

State Pension age increasing – it has been proposed that the age at which you can begin drawing your State Pension will be increased to age 66 by April 2020.

Contracting Out of the State 2nd Pension Scheme – you will no longer be able to contract out of the State 2nd Pension Scheme on an money purchase basis (e.g. Personal Pension Plan) after 6/4/2012. If you are still contracted out on 6/4/2012 you will automatically be contracted back in to the State 2nd Pension Scheme from that date.

Annual Allowance - the maximum amount that you and your employer can contribute to a pension arrangement each year without incurring tax penalties is being reduced from £255,000 to £50,000.

Lifetime Allowance - after April 2012 the maximum tax-relievable pension fund that an individual can build up from all sources is being reduced from £1.8 million to £1.5 million.

Drawdown Pension – Unsecured Pension (drawdown before age 75) and Alternatively Secured Pension (drawdown after age 75) will be abolished from April 2011 and replaced with a new pension arrangement to be known as Drawdown Pension.

Removal of age 75 restriction – if you are currently withdrawing an income from your pension arrangement by means of Unsecured Pension then, under current rules, you must cease this at age 75 and either buy an annuity or continue with a more restrictive form of drawdown.

There will be no such age 75 limit under Drawdown Pension and you will be able to continue this process of withdrawing an income from your pension fund throughout life if you wish.

Tax-free cash lump sum and age 75 restriction – under current rules you must take all of your available tax-free cash lump sum from your pension arrangements by age 75 or lose the option to take cash.

This age 75 limit is being removed from April 2011 and you will be able to take tax-free cash lump sums (within the normal limits) at any age from 55 upwards.

Flexible Drawdown - Individuals who meet a Minimum Income Requirement of £20,000 per annum from other sources (such as State and/or Occupational Pensions) will be allowed to take unrestricted sums from their pension fund from April 2011.

However any income taken under Flexible Drawdown will be taxed at the individual’s marginal rate of Income Tax in the year that it is taken.

Capped Drawdown - For individuals who cannot meet the Minimum Income Requirement then, from April 2011, the maximum income that can be withdrawn will be limited to 100% of the equivalent annuity using the Government Actuaries Department tables (it is currently 120%) – this could mean a reduction in the maximum income that can be withdrawn for some clients.

Increased tax charge on death – for funds that are in Drawdown currently where the planholder dies and the beneficiaries take the residual fund in the form of a lump sum the tax charge is currently 35%.

From April 2011 this tax charge will rise to 55% in all cases where the residual fund is taken as a lump sum.

Drawdown Reviews – the Income Limits for funds in Drawdown Pension will be reviewed every three years from April 2011 (currently every five years).

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