The form that pension provision will take for the foreseeable future has now largely coalesced from the nebula of proposal and speculation that has been permeating the industry for some time.
On the face of it things have been simplified. This, however, is always superficially the case with new regulation and with every re-reading of the new rules things often become increasingly complicated. Below are the headline changes – to check for hidden complications you may like to call us on 0121 633 7218
Contributions after 05/04/2011
- Maximum annual contribution allowance £50,000 (reduced from £255,000)
- Contributions relievable at member’s highest rate of tax
- Carry forward of unused allowance from 3 previous years to be permitted Thus, an individual who has contributed only £20,000 per annum over the last 3 years will be able to contribute £90,000 ([£50,000 – £20,000] x 3) in respect of the unused allowance in addition to the £50,000 for 2011/12
- It appears that carry forward will only be permitted if the individual was a scheme member or live policy holder over the carry forward period, ie an individual who has not been a member of a pension scheme or did not own a pension policy to which he would have been entitled to contribute over the carry forward period will not be permitted to take advantage of the new carry forward provisions. Clarification of this issue is awaited.
- Lifetime allowance reduced from £1.8m to £1.5m
- Distinction between Unsecured Pension (USP) and Alternatively Secured Pension (ASP) to be scrapped
- No compulsion to crystallise benefits by age 75
- Capped Drawdown, similar to current USP, will apply although the maximum withdrawal limits will be calculated according to a more conservative formula. However…
- Flexible Drawdown, with no limits on level of taxable income taken, available to individuals who can prove that they have secure income in excess of £20,000
- Tax charge applicable to remaining crystallised fund on death of member increased to 55% where this is paid as a lump sum, irrespective of age at which death occurs
- Lump sums payable on death of a member prior to crystallisation will continue to be free of tax except where the member is over 75 in which case tax of 55% will apply to the whole fund
1st February 2011