Pension Changes

Arguably the biggest ever

In December, the Government announced their latest raft of pension legislation that will look to come into force in April 2011.

Arguably some of the most radical changes the pension environment has ever seen, the implications of this new pension legislation are significant.

For one, you no longer need to purchase an annuity. You can also access the whole of your pension fund.

But what does this actually mean and how can you leverage the new legislation in your own financial plans?

Alternatives to purchasing an annuity

An annuity guarantees you an income for life in return for your pension fund. All well and good for some, but having a mandatory requirement to purchase an annuity by the age of 75 has been considered one of the downfalls of personal pension planning.

The existing unsecured pension and alternatively secured pension options are being scrapped and replaced with income drawdown.

For you, this means more control of your pension pot. You retain control of your portfolio, provide your spouse with more options and pass your wealth down the generations.

It’s an excellent avenue to explore for those who don’t wish to use an annuity and have the NHS Pension Scheme as the foundation of their pension planning.

Accessing your entire pension fund

If you have at least £20,000 guaranteed pension income, the new rules allow you to access your entire pension fund and open up an array of opportunities, in particular around tax planning.

The ability to defer paying tax, benefiting from growth in the pension fund, then accessing 25% of the fund tax free and paying tax potentially at a lower rate looks to be very attractive.

For those in the 60% or 50% tax bracket, it’s an opportunity not to miss. Even those in the 40% bracket should be taking advantage of it.

As the new pension landscape has implications for everyone, young and old, in work or in retirement, it’s wise to speak to your financial adviser to discuss how the new rules affect you, your family and your plans for the future.

Article by Max Spurgeon
Director and Independent Financial Adviser at Legal & Medical Investments Ltd
January 2011