Age 75, What's on the Horizon?

Both Conservative and Lib Dem manifestos pledged to scrap forced annuitisation at age 75, a move that in fact took place four years earlier with the introduction of Alternatively Secured Pension (ASP) and Scheme Pension.

What the coalition Government has produced is a consultation document proposing to allow greater flexibility of drawdown from money purchase pension schemes. The document proposes that if a minimum level of income can be secured with reasonable increases sufficient to ensure the pensioner will never fall dependent upon the state, they may vary the rate at which they draw upon their pension and potentially accelerate drawings well above the current permitted maximums.

A further proposal is the simplification of payments of funds remaining on death. Where this occurs before benefits are drawn, a lump sum will be payable without tax deduction as is currently the case. Where death is after drawing, a single 55% "tax relief recovery charge" will be made on any lump sum payment, where a dependant's income has not been provided. This will be irrespective of age, and thus worsens the position for an individual dying before age 75.

The pensions industry has been invited to reply to the consultation by 10 September and the changes are planned to take effect from April 2010.

We will continue to monitor these developments. Whilst many would see a reduced charge on death of perhaps 55% as an improvement, in many circumstances the creative use of a Scheme Pension, particularly where the individual is in poor health, could still be a more attractive option. Scheme Pension can be utilised through a Small Self Administered Scheme and through a very limited number of Self Invested Personal Pensions including our own Flexible Pension Scheme. If you would like further details of how this product might benefit your clients please get in touch.