The Treasury has, today, published a summary of the responses to the Consultation paper on removing the requirement to annuitize by age 75, together with draft legislation for further consultation, defining more clearly and with greater certainty the proposed rules. Below is our interpretation of the changes, which are correct as at 9 December 2010.
The key changes:
Most of the changes below will take effect from 6th April 2011, and include, in brief:
|1||Alternatively Secured Pension (ASP) will be abolished altogether on 6th April 2011|
|2||Unsecured Pension (USP) will be allowed to continue for life, will be referred to as drawdown pension and will be available in two forms:|
|a. Capped – as current USP but with income limits equal to 100% of rates set by HMRC and reviewed every three years before age 75 and every year from age 75b. Flexible – from which unlimited drawdowns can be taken subject to a Minimum Income Requirement (MIR)|
|3||Individuals in ASP or USP on 6th April 2011 will become subject to the new drawdown pension limits from their next review date|
|4||Lump sum benefits such as Pension Commencement Lump Sum (tax free cash) will not have to be taken by age 75|
|5||On death of pensioner in drawdown current options continue to be available|
|6||The tax recovery charge on death benefits taken as a lump sum will be 55% at all ages once benefits have been crystallised or if death occurs after age 75|
|7||The Minimum Income Requirement (MIR) has been set at £20,000 p.a. for individuals.|
|a. There will be no capital alternative to the MIR.b. The level of MIR is to be reviewed at least every five years.c. To meet the MIR, income must come from a lifetime pension: this pension can be level.|
|8||Contributions to pension will not receive tax relief after age 75 and there will be a test against the Lifetime Allowance at age 75 regardless of whether benefits have been crystallised at that point.|
The Government has made a point of recognising the value of annuities and the fact it believes they remain an effective form of insurance against the risk of outliving life expectancy.