Pension Advice

At last the final rules on the new proposed pensions regime have been announced. However, the new rules are not due to take effect until the 6 April 2006. This will give time for people to reorganise their existing arrangements if need be.The existing eight different tax regimes covering pensions are to be replaced by an all-encompassing regime.Under this new regime there will be a "single lifetime allowance" i.e. each individual will be entitled to a tax-allowable pension fund allowance. If your pension savings exceed this, tax relief will be clawed back on the excess at a penal rate.

Thankfully, the Government has, in part at least, listened to representations and set an initial lifetime allowance of £1.5m. It will then rise as follows:

2007 - £1.6m, 2008 - £1.65m, 2009 - £1.75m, 2010 - £1.8m

There will still be a limit on the maximum amount of tax-allowable contributions that can be made in any one tax year. However, this will not be dependent on earnings but will instead be a set at £215,000 initially, rising to £255,000 by 2010. If you wish to contribute more than your annual allowance then you may, but the excess contributions are subject to 40% tax.

All schemes will be able to pay out a tax-free lump sum of 25% of the fund.The tax-free cash arrangements give rise to significant opportunities for certain individuals to maximise and enhance tax-free cash prior to the 6th April 2006.If your fund exceeds the lifetime allowance, the excess is subject to 25% tax. If you wish to take the excess as a lump sum then it will be taxed at 55%.

The minimum pension age will rise from 50 to 55 by 2010.

The compulsion to take out an annuity at age 75 with all an individual's remaining pension funds is being relaxed so that a person may take out an Alternately Secured Income (ASI) plan. Moreover, this may be placed under a Family Trust so that upon death, family members can receive the assets into their own pensions. In addition pensions can be drawn without actually having to "retire" and leave employment.

A single set of investment standards will apply to all schemes.

Death benefits will be flexible. A scheme may pay up to £1.5 million tax-free as a lump sum on death before taking benefits. Any surplus will attract a 45% tax charge. Dependents