Pension unlocking - High Court freezes pension reciprocation scheme assets

A High Court judge has issued a freezing order affecting over a million pounds of assets. Papers released by
the High Court revealed that three related firms  - Ark Business Consulting, Ark Commercial Pension
Planning and Ark Commercial Retirement Planning  - had been prevented by Mr Justice Henderson from
moving around £1.08m from the country to Cyprus. The monies frozen relate to fees billed by the firms
when a pension scheme member tries to "unlock" their monies while under age 55. The schemes claim to
be able to circumvent minimum pension age rules by writing loans (of up to 50% of the pension scheme
funds) to members instead of paying pension benefits.

The law firm McGrigors is acting on behalf of Dalriada Trustees and their pensions partner Ian Gordon said:

"Many of these so-called unlocking schemes test the boundaries of what is legal and effective, and everyone should be made fully aware of the risks. The types of organisations who typically market schemes
of this nature are often registered abroad and as such are not regulated by the FSA. We would advise
anyone who is approached with an 'unlocking' or reciprocation proposition to proceed with the utmost
caution. Some press reports have indicated that pensions reciprocation agreements are marketed as a
means to free up investment for capital in overseas real estate ventures, and that type of arrangement
should sound alarm bells."

The Pensions Regulator and the FSA also issued warnings about such schemes last month

HMRC clarify £20,000 Minimum Income Requirement

Recent press articles have suggested that an individual wishing to make a flexible drawdown declaration must
be in receipt of secure pension income of at least £20,000 that is actually paid or payable in the tax year in
which the declaration is made and this would appear to be the correct understanding.
For example, if the secure income consisted of a conventional lifetime annuity for £30,000 payable monthly in
arrears (i.e. £2,500 per month) when the annuity was first taken out the monthly income would have to be
receivable for at least 8 months of that tax year in order for the £20,000 requirement to be reached in the first
tax year.
Source Threesixty services llp

All change for pensions.

HMRC have published a summary of the impending changes such as:

• the reduction in annual allowance
• the removal of the requirement to annuitise by age 75 and 
• early access to pension saving

Let us know if you would like a translation.

Pension contribution tax relief and lifetime allowance

From tax year 2011/12 tax relief on pension contributions will be restricted to an annual allowance of £50k pa. The annual allowance will be "frozen" until at least 2016/ 17. Tax relief will be available at your highest marginal rate of tax. You will be able to "carry forward" unused annual allowance from the previous 3 tax years, including 2008/09, 2009/10, 2010/11 (£50k pa).



The new lifetime allowance (LTA) of £1.5 million will start from tax year 2012/13. Transitional provisions will be introduced for those individuals who:

• Have primary protection
• Have no transitional protection, but have pension benefits currently valued in excess of £1.5 million
• With pensions currently valued at less than £1.5 million, but who feel that the investment growth/benefit revaluation may take their pension value over £1.5 million
• Enhanced and primary protection will be retained, but enhanced protection will no longer be exempt from the AA test.

The rules relating to trivial pension commutation will be de-coupled from the LTA, therefore the existing limit of £18,000 will not be reduced.

Treasury consult on tax relief for pension contributions

Looks like the annual contribution allowance of £255k pa will be phased out in favour of a simpler but less generous limit of £30k - £45k per annum. The treasury will also consider the complicated issue of valuing defined benefit pension schemes. The changes are most likely to be implemented from April 2011.

Government launches consultation on removing requirement to annuitise by 75

Financial Secretary to the Treasury, Mark Hoban MP, yesterday announced the start of an 8-week consultation on removing the effective requirement to annuitise by age 75, following the announcement in the June Budget that these rules will end from April 2011

The consultation document sets out proposals that will simplify the treatment of retirement savings and reduce complexity for individuals as well as for pension and annuity providers. The reforms will give individuals greater flexibility to choose the retirement options that are best for them, with more choice over how they can provide a retirement income for themselves.

From April 2011, there will no longer be a specific age by which people effectively have to annuitise. This will give people who wish to buy an annuity greater flexibility in the timing of their annuity purchase. The Government will also create more flexibility for people who do not wish to buy an annuity. USP currently allows individuals to take a tax-free lump sum at the beginning of their retirement if they wish, keeping funds invested in a tax-exempt environment while drawing down an income from their remaining pension pot in line with their needs, subject to a prudent drawdown limit. The Government will allow capped drawdown - equivalent to USP extended beyond age 75 - for the whole of an individual’s retirement. This means that individuals will be able to choose how much to draw down annually from their pension pot throughout their retirement (subject to a capped limit), or whether to draw any income at all.

The Government will go further than capped drawdown by creating additional flexibility for individuals who wish to draw down more than the capped annual limit. Under this flexible drawdown model, individuals will be able to draw down unlimited amounts from their pension pot, provided that they can demonstrate that they have secured a sufficient minimum income to prevent them from exhausting their savings prematurely and falling back on the state. The requirement to demonstrate a minimum income will apply at the point at which an individual wants to exceed the annual capped drawdown limit. The Government wants to ensure that the requirement to secure a minimum income is transparent and fair and can be implemented without undue complexity or burdens on individuals or business.

Both capped and flexible drawdown will increase flexibility for private pension savers before and after age 75. This will make it unnecessary to continue to offer ASP as an option after age 75. ASP will therefore cease to exist when new rules come into effect. The new capped and flexible drawdown limits and rules will apply to existing members of ASP from April 2011.

Further detail on proposed tax charges will be published in draft legislation later in the year.

The consultation document Removing the requirement to annuitise by age 75 is available on the HM Treasury website via this link. Responses to the consultation can be sent to: age75@hmtreasury.gsi.gov.uk. The consultation period started yesterday and closes on the 10 September 2010. Draft legislation for the reforms will be published in the autumn.

More and more members now staying with their occupational pension schemes

The number of people leaving their pension schemes fell to its lowest level this year, while enquiries about the current value of the pensions rose to its highest level, according to Aon Consulting in a recent article from the Financial Times. Enquiries from members regarding their pension schemes were up 26 per cent from June. The number of members leaving their pension scheme also fell by 34 per cent during the third quarter. The research included 350,000 scheme members from 35 UK defined contribution (DC) and defined benefit (DB) schemes. The fall appears to indicate increased confidence in private sector pension schemes and a growing interest in planning for retirement. Click on the link above for the full article.

QROPS in The Sunday Times

OVERSEAS pension funds have seen demand soar over the summer, as a growing number of Britons plan to retire or move abroad to avoid the new 50% tax.

Handling benficiary designations

A useful summary of designating beneficiaries for life and pension plans.

Gibraltar suspends QROPS transfers

Administrators of QROPS in Gibraltar are holding off UK pension transfers pending the resolution of a tax query raised by HMRC.

High earners - Pension amendments to the 2009 Finance Bill

If your income has been over £150k in the past two tax years or will be this year then your pension contributions may be restricted. More details can be found here or call us to discuss your particular case - 020 8209 9247