There was positive news on pensions today with the release of a document explaining new rules which will do away with the need for people who have defined contribution (aka money purchase) pension schemes to purchase an annuity by the age of 75. This proposed change is aimed to come into force in April 2011.
Effectively this will mean that those of you with defined contribution pension pots, such as Personal Pensions, will now be able to continue with income drawdown arrangements (where you draw on pension savings keeping the pot invested) for as long as they choose beyond the age of 75. The one drawback to these changes is that tax on unspent pension funds levied on death will be higher (at 55%) after age 75 than the rate (35%) that applies before the age of 75.
The changes will also mean greater flexibility for those people who have a secured income of at least £20,000 a year. Where people are in that position, and clearly will not ever fall on to the State for support, the flexibility of income drawdown that they have on additional pension pots is to be greatly extended.
This additional flexibility (drawdown or similar) will, of course, be of real use only to people with higher than average levels of pension saving. However I have to say that I don’t think that it is a bad idea to make it more attractive to people to make more provision for retirement. The indication from Whitehall seems to be that while the Government is working to make pensions more flexible ‘the more you save, the more flexibility you will get’.
The following is a link which explains the changes in greater detail for those of you who like a bit more meat on the bone.
http://www.hm-treasury.gov.uk/d/pensions_annuitisation.pdf
So, to conclude; the age-75 rule is being removed; all DC pension savers will have the right to income drawdown indefinitely; a new form of flexible drawdown is being introduced for people who already have a secured retirement income above a certain level.
This has to be a step in the right direction. As ever if you need more information just drop an e-mail or give me a call on either 0800 321 3508 – free from a landline, or direct on my mobile at 0757 679 1009. Until next time…
