Summary of the key changes
Paying into your pension
- From the 6th April 2011, the amount you are allowed to pay into your pension (called the Annual Allowance) on which you will receive tax relief will reduce to £50,000 (currently £255,000)
- If you have been a member of a registered pension scheme, a new feature called ‘carry forward’ may allow you to bring forward unused pension contribution allowance from up to the three previous tax years (subject to the £50,000 cap per tax year)
- Tax relief will be simplified. You will receive tax relief at your highest marginal rate of tax on your entire contribution up to £50,000 (even if you earn over £130,000)
- The amount you can build up in your pension fund (called the Lifetime Allowance) without paying a tax charge will be £1.5m from 6th April 2012 (this is currently £1.8m)
- There will be a new form of protection called Fixed Protection. This will be available to individuals who expect the amount of their pension savings to be more than £1.5m when they come to take their benefits. Those individuals who apply for this protection will have a personal lifetime allowance of £1.8m. There is a strict deadline of 5th April 2012 to apply for Fixed Protection
At or approaching retirement
- From 6th April 2011, you will no longer have to buy an annuity or take your tax free lump sum by age 75
- For those taking or intending to take income directly from their pension fund, the existing Unsecured Pension (USP) and Alternatively Secured Pension (ASP) rules will be replaced by a new single set of ‘Drawdown Pension’ rules providing two options;
- ‘Capped Drawdown’ - an option to draw an income for life (subject to an annual limit) without having to purchase an annuity
- ‘Flexible Drawdown – this option is available to individuals with ‘secure retirement income’ of £20,000pa. Additional withdrawals from the pension fund will not be subject to an annual limit. NB: only some types of retirement income are treated as ‘secure income’. We will be happy to discuss this with you.
On death
- There will be an increase in the tax rate payable on the remaining pension fund if you die whilst in Drawdown Pension. Currently, this is 35% and will rise to 55% (if taken as a lump sum)
- There continues in normal circumstances to be no tax to pay on the pension funds where death occurs before age 75 (assuming that no income or benefits have been taken from the pension fund)
