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.

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.

Can you better the pension offered by your pension provider?

Pre Retirees who shop around for an annuity are around 50 times more likely to get a better income than those who stick with their existing pension company, says the Association of British Insurers. To read more, click on the heading above...

Effect of falling inflation on index-linked pension payments

Some personal pensions in payment will apparently be cut if the annual rate of inflation falls this year. The government is predicting RPI will show a year-on-year drop of more than 2% by the Autumn.
If that happens, some pension providers have said they will reduce payments on index-linked pension annuities. However, the government has promised that the basic state pension will rise by at least 2.5% even if prices fall year-on-year.

Some providers (including Axa, LV, Partnership, some Standard Life annuities, some Prudential annuities) have said that if RPI becomes negative payments will go down. Other providers have said they will not make cuts (Norwich Union, MGM, and Legal & General) but that payments will remain flat until RPI increases to a higher level than it was before.

Many company pensions may also be frozen if prices fall.