PENSIONS SIMPLIFICATION

‘A’ Day (the Appointed day) arrived on 6th April 2006 and brought with it sweeping and radical changes in relation to pension legislation. This has created a single universal regime to replace the previous eight tax regimes and the changes have affected savers in occupational and personal pension schemes, employers and financial advisers.

Pension simplification introduced two new controls, the pension Lifetime Allowance (LA) and pension Annual Allowance (AA) From April 2006, there is now just one set of tax rules for all types of pension, with an individual LA of £1 million (2016/2017) and an individual AA of £40,000 (2016/2017). All individuals will be able to fund up to these limits with the possibility to also carrying forward unused AA from the previous 3 years AA. Exceeding the LA or the AA will simply trigger a tax charge.

OTHER CHANGES INCLUDED:
Early retirement age available from age 55
Full concurrency (i.e. being able to pay into any array of plans you wish), subject to the annual allowance and potential for carry forward
Wide investment flexibility
Up to 25% Tax Free Cash
The ability to commute ‘small’ funds of less than £18,000, as a one off lump sum as opposed to having to draw a regular income from age 60
Flexible options at retirement when deciding to take benefits such as capped and flexible drawdown
No need to ‘have to’ secure benefits at age 75 via an annuity

CHANGES IN PENSIONS FROM APRIL 2015.
Changes were announced in April 2015 which you should also be aware of. There will no longer be restrictions on how individuals aged over 55 can access their defined contribution pension pots. The government proposes – subject to ongoing consultation – to change the tax rules to allow people to access these savings as they wish at the point of retirement, subject to their marginal rate of income tax.

The consultation on retirement flexibility also includes a proposal to raise the age at which an individual can take their private pension savings under the tax rules from 55 to 57 in 2028, at the point that the State Pension age increases to 67. From then on, the minimum pension age in the tax rules will rise in line with the State Pension age so that it is always ten years below. This change is proposed to cover all pension schemes which qualify for tax relief, with no exceptions.