A-Day
On 6 April 2006, some major changes were introduced to the UK pension system. These changes were designed to give savers and investors greater flexibility and to make pensions less complex. Here are the key changes you should be aware of:
A-Day: the main changes at a glance
Contributions
You can now contribute an amount up to 100% of earnings into your pension plan and get tax relief on the whole amount up to a maximum annual allowance of £235,000 in 2008/09 (rising to £255,000 in 2010/11). This offers scope for higher earners to contribute large amounts into their pension funds to maximise income during retirement. It is possible to pay in more but not receive tax relief but exceeding the annual allowance will result in a tax charge of 40%.
Lifetime allowance
The overall value of all your pension plans must not exceed a lifetime allowance – currently £1.65 million for 2008/09. Any excess over the lifetime allowance can be subject to additional tax.
Multiple plans
You can contribute to different pension plans at the same time, including both company and personal pensions, so long as your overall contributions don’t exceed the limits above – and you don’t exceed the lifetime allowance.
Tax-free lump sum
The amount of pension that can be taken as a tax-free lump sum has been set at 25% for most types of pension. Some members of company schemes may have previously been entitled to withdraw a larger lump sum and should check this with their scheme administrator.
It is also now possible to withdraw the tax-free lump sum whether or not you want to start taking an income from your pension.
Minimum retirement age
The minimum age you can start taking benefits from a pension scheme will rise from 50 to 55 by 2010.
Alternative to annuities
The government has also introduced an alternative to buying an annuity (the contract that transforms your pension fund into retirement income, which must normally be arranged by age 75) called an alternative secured pension. However, these are only intended for people who can prove they object to annuities on religious grounds.
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