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Pensions Simplification

‘A’ Day (the Appointed day) arrived on 6th April 2006 and brought with it sweeping and radical changes in relation to pension legislation.

This has created a single universal regime to replace the previous eight tax regimes and the changes have affected savers in occupational and personal pension schemes, employers and financial advisers. 

Pension simplification introduced two new controls, the pension Lifetime Allowance (LA) and pension Annual Allowance (AA).

From April 2006, there is now just one set of tax rules for all types of pension, with an individual LA of £1.25 million (2015/2016) and an individual AA of £40,000 (2015/2016).( The LA will reduce to £1 million (2016/2017). All individuals will be able to fund up to these limits with the possibility to also carrying forward unused AA from the previous 3 years of up to £50,000 per annum.

Exceeding the LA or the AA will simply trigger a tax charge. 

Other changes included:

  • Early retirement age available from age 55
  • Full concurrency (i.e. being able to pay into any array of plans you wish), subject to the annual allowance and potential for carry forward
  • Wide investment flexibility
  • Up to 25% Tax Free Cash
  • The ability to commute ‘small’ funds as a one off lump sum as opposed to having to draw a regular income from age 55 (subject to part of the fund being taxed)
  • Flexible options at retirement when deciding to take benefits such as Drawdown
  • No need to ‘have to’ secure benefits at age 75 via an annuity

In addition another raft of changes introduced in April 2015 also gives individuals further and greater flexibility to access their pension savings from age 55. 

The changes also include: 

  • To increase the flexibility of the income drawdown rules by removing the maximum ‘cap’ on withdrawal and minimum income requirements for all new drawdown funds from 6 April 2015;
  • To enable those with ‘capped’ drawdown to convert to a new Flexi-access Drawdown fund once arranged with their scheme
  • To enable pension schemes to make payments directly from pension savings with 25 per cent taken tax-free, known as the Uncrystallised Fund Pension Lump Sum (UFPLS) option
  • To remove restrictions on lifetime annuity payments;
  • To ensure that individuals do not exploit the new system to gain unintended tax advantages by introducing a reduced annual allowance (£10,000 2015/2016) for money purchase savings where the individual has flexibly accessed their savings; and,
  • To increase the maximum value and scope of trivial commutation lump sum death benefits.

Recent changes

George Osbourne also announced in the emergency budget sweeping changes to pension tax relief and 'income' calculations and pension input periods which will need careful consideration for high earners.

Why not contact us to review your retirement planning?

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