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A-DAY - THE KEY FACTS
focus on the
future
Pensions have undergone radical reform, with the introduction of a
single universal regime for tax-privileged pension savings.
From April 2006, pension schemes are governed by two key controls:
a) A lifetime limit on the amount of pension savings that can benefit from
tax relief, and
b) An annual limit on the amount of pension contributions or increases in
pension benefits
Investors who have built up substantial pension rights before the new legislation
came into force may be able to protect them by registering with the Inland
Revenue for one of two options; Primary or Enhanced protection.
The new regime offers greater flexibility in how pension savings can be
invested and how benefits can be taken.
For the main changes, please refer to ‘Top 10 Facts’ below.
Boolers are able to guide you through the legislation to arrive at the
pension solution that is best for you.
TOP 10 FACTS
About the New Pensions Tax Regime
1. The new regime started from 6 April 2006, or A-Day as it is known
2. There is a single lifetime allowance on the amount of pension savings
that can benefit from tax relief. The level has initially been set at £1.5m,
increasing annually to £1.8 m by 2010. If an individual accrues
benefits in excess of this allowance, a tax charge will be levied when
they draw benefits. This will be 25% of the excess if taken as a pension,
and 55% of the excess if taken as a cash sum.
3. The second key control of the new regime will be an annual allowance
for contributions, initially
set at £215,000, increasing steadily each year to £255,000
by 2010. It will be possible to build up pension benefits in excess of
the annual allowance, although excess contributions or increases will
be subject to a tax charge of 40%.
4. The minimum pension age will rise from 50 to 55 from 6 April 2010, although
those with existing contractual rights to draw a pension earlier may have
that right protected and there will be special protection for members of
schemes in existence before April 2006 with low normal retirement ages,
such as those for sports people.
5. Pensions savings will still have to be converted into income by age 75.
However, the minimum income level can actually be set at nil, regardless
of whether benefits are taken at 75 or earlier.
6. From A-Day, there is a single set of rules on pensions in payment.
All Schemes will be able to pay pension commencement lump sums of up to
25% of the value of the fund (or the value of the pension benefits being
taken), subject to a maximum of 25% of the lifetime allowance.
7. Occupational pension schemes will have the opportunity to offer flexible
retirement if they wish. This will enable people in occupational pension
schemes to draw retirement benefits while continuing to work for the same
employer.
8. Post A-Day the range of permitted investments available for pension
schemes has increased.
9. The approval process for new pension schemes has been replaced
by a an electronic registration process.
10. Subject to certain conditions, existing pension benefits at or close
to the lifetime allowance may be protected by registering for ‘enhanced’ or ‘primary
protection’. A pre A-Day entitlement to a pension commencement
lump sum that exceeds 25% of the fund may be protected.
This information has been provided for guidance purposes only and should
not be regarded as a substitute for taking financial advice. Legislation
and taxation are subject to change.
