The following is a summary of future reforms to occupational and personal
pensions (including stakeholder
pensions).
Statutory minimum retirement age
All registered pension schemes must incorporate the normal
minimum pension age of 55 into their rules by 6 April 2010. It is
for schemes/employers to decide how and when to make this change in
a way that best suits their needs. This is a matter of tax
legislation and is contained in the 2004 Finance Act.
Click here to read more about
minimum retirement ages.
Statutory maximum retirement age
Historically, members of private pension schemes have been
forced to draw their retirement benefits by the age of
75. From 6 April 2011 this limit will change - the
government is currently running a consultation on the new rules to
apply from this date. We will update this page when details of the
new regime are published.
In the meantime, effective from 22 June 2010, some pension
scheme members can take advantage of transitional rules.
Basically, members of defined contributions pension schemes (i.e.
money purchase, personal and stakeholder schemes) who have not yet
purchased an annuity and reach 75 on or after 22 June
2010, will have until age 77 to purchase their annuity or move
into Alternatively Secured
Pension (ASP) .
There are a number of conditions to these transitional
rules so you should click here to download HMRC's full
announcement.
It should be noted that the Alternatively Secured
Pension (ASP) is still an option for those wanting to
defer annuity purchase beyond their maximum retirement age, whether
that be 75 or 77.
Lifetime Allowance and Annual Allowance
What's Changing?
Since the Lifetime Allowance (LTA) and Annual
Allowance (AA) were introduced in 2006, they have increased
each year. Now, the LTA and AA will rise in the 2010/11 tax
year but will then be frozen for at least the next 5 tax
years.
- The LTA will be fixed at: £1.8m
- The AA will be fixed at: £255,000.
Who does it affect?
Everyone, except those who had large pension pots at April 2006
and took Enhanced Protection.
Are there any exceptions?
If you have large pension savings and opted for Enhanced
Protection, benefits can be taken without the application of any
recovery charge, regardless of their value and regardless of the
change in the LTA (to qualify for Enhanced Protection, you had to
cease being an active member and opt out of making further pension
savings before 6 April 2006.)
There is no Annual Allowance in the year of taking benefits.
What will be the consequences (if any)?
The Trivial
Commutation Limit is linked to the LTA, so this will also be
fixed at £18,000 (1% of the LTA).
Anyone who has opted for Primary Protection will need to be
aware that their personal LTA will stay frozen too. That is
because Primary Protection values an individual's pension rights on
6 April 2006, to produce a percentage uplift to the lifetime
allowance.
For example, if someone's pension benefits on 6 April 2006 were
valued at £2.25 million this would equate to 150% of the LTA.
Benefits would then be protected from the recovery charge
until the value exceeded 150% of the Lifetime Allowance at the
point they were drawn. So someone with a personal LTA of 150%
would only protect pension savings up to £2.7m throughout the
period between 6 April 2010 and 5 April 2016.
Abolition of 'contracting out' for defined contribution
schemes
Contracting out for defined
contribution schemes will be
abolished. Contracting-out certificates for these schemes will
be automatically cancelled. The result will be that members
of money purchase schemes will be automatically contracted back in
to the S2P from the date of cancellation. This is likely to
become effective from 2012.
