The pensions world is set to change, following a series of reviews instigated by the Government. Most of the changes apply from April 2006 and will affect many people coming up for retirement.

The main changes are as follows:

Minimum Retirement Age

Currently, retirement benefits can be taken from the age of 50 years and must be taken at 75 years if not taken earlier. The latter will not change, but the former will change from 6 April 2010, after which the lower age limit for taking retirement benefits will be raised to 55.

Pensions

From 6 April 2005 it has not been necessary for the part of an annuity purchased from the ‘protected rights’ element or from a money-purchase occupational pension scheme to increase annually.

The cap on maximum pension benefits put in place by HM Revenue and Customs (HMRC) will be removed, but the total amount oftax-privileged pension fund is limited to £1.5m (the Standard Lifetime Allowance or SLA). This limit should increase annually. The ‘excess’ funds will carry a tax charge of 55 per cent if taken as a lump sum and 25 per cent if they are taken as income. Where the pension fund exceeds the SLA already, an application for exemption can be made to HMRC until 6 April 2009. Where the lump sum taken from a pension fund exceeds 25 per cent of the fund value, there will be a charge to income tax. Similarly, where the fund is paid out because the pension fund owner dies before it vests, any excess of the payment over the SLA will be taxable.

Also, there are a number of restrictions being put on pension drawdown arrangements, whereby the pension is drawn over a period of time.

Contributions to Pensions

The maximum which can be put into a tax advantaged pension scheme annually (the ‘annual allowance’) will be £215,000 from 6 April 2006. This should increase annually. Contributors will be able to claim tax relief on £3,600 of contributions in all cases and 100 per cent of their ‘relevant earnings’ where this is more, subject to the cap imposed by the annual allowance.

Trivial Pensions

There are also provisions which will permit people over 60 years old to take trivial pensions (less than one per cent of the Standard Lifetime Allowance) as a lump sum. The commutation of all such pensions must be carried out in a single year.

Pension planning is an area in which good advice is a must. It interacts with inheritance tax and income tax planning and family financial planning generally. We can help you plan ahead to achieve the best results for you and your family.