Pension Services

A-Day – what does it all mean (nothing to do with WWII)

On the 6th April 2006 the government introduced new pensions legislation designed to simplify pension provision in the UK. This affects all existing pension plans including personal pensions, AVC’s, retirement annuity plans, income drawdown, self invested pensions and all company pension schemes.

The Pensions Act 2004 - basic changes

Introduction of the lifetime allowance - a new lifetime savings limit will be introduced. Set at £1.5 million for 2006/07, and increased each year, any saving in excess of this limit will be subject to taxation.
Tax free cash - now available from all types of pension at a flat rate of 25% of the fund value, including AVCs and protected rights (SERPS).
Primary & enhanced protection -to allow people with large funds near or in excess of the lifetime allowance and/ or with existing tax free cash entitlement in excess of 25% to apply for protection of all existing pension provision.
Improved investment flexibility - a wide range of new permitted investments will be available.
New contribution limits - revised annual savings limits will be introduced. Individuals without relevant earnings can pay up to £3,600 per annum. Employed and self employed individuals with relevant earnings can pay up to £3,600 or 100% of earnings if greater, subject to the overall annual allowance. Employers can make unrestricted contributions provided the total of employee and employer contributions does not exceed the annual allowance. The annual allowance is set at £215,000 for 2006/07. Any contributions in excess of this limit will be subject to taxation.
Changes to the minimum retirement age - the minimum retirement age will be increased from 50 to 55 from 6th April 2010 and from April 2006 members of company pension schemes will not have to retire to draw benefits.
From April 2006 members of company pension schemes will not have to retire to draw benefits.
Option to defer the state pension -the Department for Work and Pensions have announced that individuals who choose to take their state pension late can receive a one off payment or an increased weekly pension. The lump sum is worth over £30,000 for individuals deferring for five years.
New pension annuity options -traditional annuity options will be extended to include a value protected annuity and a fixed term annuity.
Removal of carry back & carry forward - carry back and carry forward will be abolished together with basis and cessation years.
Triviality extended - The trivial pension limit will be set at 1% of the lifetime allowance for people aged 60 or over. This allows an individual retiring in 2006/07 with total pension funds from all sources of less than £15,000 to take the total as a cash sum.
New income drawdown rules - Income drawdown will be known as unsecured income, with the minimum GAD income requirement reduced to £0 and the maximum increased to 120%. Reviews will be extended to every five years. A new alternatively secured pension option will be introduced to allow people to continue in a new form of drawdown past age 75.
Tax relief on life assurance - after April 2006 life assurance policies can be written as pension term assurance plans reducing costs as premiums will be eligible for tax relief.