Pensions – the new rules
Paula Hodge, Partner
Changes to Income Drawdown It has been requested for years and finally we have seen the end of compulsory annuitisation at age 75. Actually it hasn’t been oblicatory to buy an annuity since April 2006 but the Alternatively Secured Pension (ASP) contract as the alternative option was not very attractive for many and therefore not widely used.
The new legislation brings sweeping changes, and there is still clarification needed over some of the detail which will only come when the final legislation has been published.
What is changing?
Unsecured Income (Income Drawdown) and ASP ceased to exist on the 6 April 2011 and has been replaced by Capped Drawdown and Flexible Drawdown, both of which are available from age 55 onwards.
Capped Drawdown is similar to Unsecured Income so you will be able to take an income within limits directly from your pension fund each year. There are some minor changes with the maximum income reducing for many and the income reviews will be at more frequent three year intervals as opposed to the current five year reviews. Once you reach the age of 75 reviews will take place every year and the new rules may mean a higher level of income can be drawn.
Flexible Drawdown really is as the name suggests; there will be no limit on the income you take provided the eligibility requirements are met. To be eligible for Flexible Drawdown you must meet the minimum income requirement (MIR), currently set at £20,000 per annum.
The option of a lump sum death benefit remains but the tax rate for those aged under 75 is increased from 35% to 55%. This option is now extended to deaths beyond age 75 allowing part of the pension fund to be inherited or it will still be taxed at 55%.
Key pension changes New pension named ‘Capped Drawdown’ and ‘Flexible Drawdown’ Reviews for drawdown customers under age 75 will be every three years. Tax charge on death in drawdown up from 35% to 55%. Minimum income requirement for Flexible Drawdown of £20,000. No further contributions allowed for customers who use Flexible Drawdown. No tax relief on contributions to pensions after age 75.
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