A-Day Pension Changes

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A-Day - Changes to Pensions from 6 April 2006

The 6th April 2006 sees some of the most significant reforms to pensions in the last 60 years, following the Pensions and Finance Act 2004. The changes are intended to make pensions simpler to understand and easier to invest in, to encourage everyone to take control of their own pension provisions. As we are living longer, the state will simply not be able to support an increasingly high proportion of the population as pensioners.

The most significant changes to current pension rules are:

• Inland Revenue restrictions on pension contribution levels will be removed. Up to 100% of earned income in any tax year, currently up to £215,000 may be invested in pensions with tax relief available.
  
  
• A cap on the total that may be held in pension funds will be imposed at £1.5 million (this level is set to rise in future however).
  
  
• 25% of the pension fund may be drawn as a tax free lump sum - an option available under some but not all types of pension.
  
  
• Rules about working until later in life and buying an annuity no later than age 75 will be relaxed and there will be increased flexibility for purchasing annuities and continuing contributions.
  
  
• Retirement age will be increased from 50 to 55 by 2010.

The majority of people should benefit under the changes to the rules however it is a good idea to look carefully at any currently held pension plans before the rules change. It may be possible to apply to protect some benefits available under old rules which could be worthwhile for example under some schemes more than 25% of the fund may be available as tax-free cash. Also look at the total find sizes to check that it will not exceed the current £1.5million limit (including potential future growth) as there will be tax liabilities on the excess above this level of up to 55%.

The facility to carry back and carry forward used tax relief will also no longer be available after 6th April 2006.

For professional advice about how A-Day will affect you and what you should consider before it's too late, please complete the Quick Enquiry Form and one of our experts will contact you. Alternatively, you can call us on local rate 0845 108 0505.

For inspiration for many alternative ways to build up a fund for retirement, visit us at www.Investments.co.uk