Pensions Overview

Over the last 10 years major changes were introduced to the structure of UK Pension schemes. These changes heralded probably the most radical overhaul of the UKs' Pension tax regime. The new simplified regime was largely a replacement of the past pension framework as opposed to the addition of another layer of legislation. Many changes were introduced, some of the main ones are as follows:-

Introduction of a Lifetime allowance

Each member of a pension scheme has a maximum permitted tax-exempt fund at retirement. This lifetime allowance is currently set at £1 million in (2017/2018 tax year)

Contributions & The Annual Allowance

There is an annual pension input allowance, (known as the Annual Allowance) set at £40,000 (2017/2018 tax year), for all pension schemes, unless you have already flexibly accessed other pension funds in which case your Money Purchase Annual Allowance is reduced to £4,000. An individual can now contribute up to 100% of their earnings.

Pension Commencement Lump Sum (Tax free Cash)

The maximum pension commencement lump sum (Tax Free Cash) from any pension arrangement is 25% of the value of the pension rights or the available lifetime allowance, whichever is the lower. Prior to pension’s simplification in 2006, some scheme members may have built up the rights to a lump sum greater than 25%, but would have to have applied for HMRC protection. This is a complex area of pension’s advice and consultation with an advisor would be highly recommended.

Retirement Age

Governed by scheme rules, if it's an Occupational Scheme transfers can take place, whereas in the case of Money Purchase Schemes the minimum age for drawing benefits is now age 55, and this will rise to age 57 in 2028.

Death Benefits

The maximum lump sum death benefit is simply equal to the lifetime allowance, so this is currently £1 million.

(There are transitional provisions made in respect to some of these key areas of planning and in respect to overfunding the government have introduced some tax charges.)

Drawing your pension

You now have a choice:

• Annuities (Lifetime, Fixed Term, With Profits, Ill Health, Unit Linked etc)
• Scheme Pension
• Capped and Flexible Drawdown (Pension Fund Withdrawal)
• Phased Retirement
• Uncrystallised Pension Fund Lump Sum (UFPLS)
• Triviality
• Third Way Pensions

A PENSION IS A LONG TERM INVESTMENT THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND ON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES, AND TAX LEGISLATION