Flexible Retirement
Since 6 April 2006, there is now greater flexibility about taking your benefits and continuing to work. You may wish to work part-time and access part of your pension fund in order to augment your salary. That will be allowed.
Prior to 6 April 2006 you could not access benefits early from an occupational scheme without either first transferring into a personal pension plan or leaving the employment to which the scheme relates. This is no longer necessary. Provided the occupational scheme rules permit, you could take all or part of your pension and continue to work in that employment.
If you are in an occupational scheme you previously could not make additional retirement saving except through an Additional Voluntary Contribution (AVC) arrangement attached to the occupational or a free standing AVC plan (usually with attendant high costs) unless you earned less than £30,000 p.a. The new rules will allow you the flexibility to pay extra contributions to a personal pension plan or to one of the new, low cost stakeholder schemes, irrespective of how much you earn.
Contributions you could make to a pension scheme were restricted to a percentage of your salary. In the case of an occupational scheme, the limit was 15% and in the case of a personal or stakeholder scheme the limit depended on your salary and ranged from 17.5% to 40%. Now no limit applies. The only restriction is the amount you can pay to which tax relief will apply – this is limited to the amount of your earnings.
The object of the new rules was to make the system simpler and more flexible so as to encourage people to engage more readily with the pension system which previously had been complicated and off-putting for many people.
- I’m in my company’s final salary scheme. Can I draw the pension now and carry on working?
There is now greater flexibility for taking your benefits and continuing to work. If your employer has adopted the new rules, you may be able to draw retirement benefits and continue working. It may also be possible for you to work part-time and access part of your pension fund in order to augment your salary. You should contact your employer if this is an option you want to consider.
- My scheme has told me I can’t take my pension and stay on. Is this right?
Possibly. It may be that your employer has not adopted the new rule. They do not have to. You should contact your employer to find out if this is the case and, if it is, whether there are plans to adopt it in the future.
- Can I take my AVCs now and leave my main scheme pension until a later date?
Possibly. It is possible to draw benefits from the main scheme and the AVC fund at different times. However, this rule must have been adopted by the main scheme and included in its rules. You should check with your scheme to establish what the rules allow.
- Can I pay into a stakeholder scheme and my company scheme at the same time?
Yes. In April 2006, concurrency rules were abolished. It is now possible to pay into as many pension schemes at the same time as you want. Contributions to the schemes are not limited but you will only receive tax relief on up to £3,600 or 100% of your earnings, whichever is greater. In addition, there may be a tax charge if you exceed the Annual Allowance
- I was told in March 2005 that I couldn’t pay into a stakeholder scheme at the same time as my company scheme. I was told yesterday that I can. I am confused.
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When the advice was given in 2005, concurrency rules were in place. It was only possible to contribute to a company pension scheme and stakeholder scheme at the same time if you had earned less than £30,000 in any one of the previous five tax years. Also, concurrency was not possible if you had been a Controlling Director in any of the previous five tax years.
I can only assume at the time the advice was given, you were exempt from concurrent contributions because you were or had been a Controlling Director or your earnings were too high.
Q & As
