Radical Pension Changes

Following on from the Budget, David Higgins, Director Glazers Financial Services, has summarised the radical pension changes which come into effect from April 2006.

Pension Simplification

In the Budget Gordon Brown confirmed that the simplification of pension tax rules will start from 6th April 2006. This is one year later than originally announced in June 2003 by Andrew Smith, The Secretary of State for Work and Pensions.

Summary

A lifetime limit of £1.5m will be imposed on your pension fund. The limit will be increased by pre-determined amounts to £1.8m by April 2010.

The tax on funds in excess of the lifetime limit will be 25%, or 55% if taken as a cash lump sum.

Tax-free cash will be limited to 25% of the fund value up to the lifetime limit.

The annual contribution allowance has been increased from £200,000 to £215,000 rising to £255,000 in 2006/07. Personal contributions are limited to 100% of relevant earnings.

For pension funds that are already greater than £1.5m, or will be by April 2006, there will be no excess tax charge if there are no further contributions after April 2006.

You will no longer have to buy an annuity at age 75, but death benefits may be restricted.

Residential property will be an acceptable investment for pensions.

The amount that you can borrow through a SIPP will be restricted to 50% of the pension fund value, against 75% of the commercial property’s purchase price now. Similar restrictions will apply to a SSAS (the company equivalent).

The announcement means that a large number of people will have to take action before April 2006. Some of these individuals will need to:

Protect their existing pension fund.

Retain preferential tax-free cash entitlement.

Maximise the opportunity to borrow money and invest in commercial property.

Make pension contributions for the last time.

Lend money to, or invest in, their company at preferential terms.

If you would like to discuss the options available to your, contact David Higgins on 020 8458 7427 or email him at david.higgins@glazers.co.uk.

© Copyright Glazers 2010. All rights reserved. This information has been produced for general interest. It is therefore essential to take advice on specific issues. We are unable to take responsibility for any outcome resulting from acting upon, or refraining to act upon, this information.

Radical Pension Changes

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