More choice over pension

New pension rules - giving greater flexibility to individuals taking retirement benefits - are expected to be operative from 6 April 2011.

Historically, individuals have had to set up a lifetime annuity or move into an Alternatively Secured Pension (ASP) after 75, but from April pension members can control how and when they take their income. This additional flexibility encourages everyone to save and could be useful for senior managers or high earners.

As an alternative to a lifetime annuity, where parameters accepted at the outset cannot be subsequently changed, investors will be able to use income drawdown or take no income at all for as long as they want.

‘Capped drawdown’ sets the maximum annual income at broadly equivalent levels to that available from a single life level annuity - a slight reduction on the current maximum allowance of 120% of annuity income. Income limits are age and sex specific and maximum amounts are reviewed every 3 years (previously every 5 years) until 75, then yearly. No minimum income levels apply. Capped drawdown can have positive implications for tax planning but always seek professional financial advice.

Alternatively, investors can choose the new ‘flexible drawdown’ option whereby investors over 55 can take as much income as they want from their pension fund providing that they have an additional “secure pension” income of £20,000 a year when they first go into flexible drawdown. The secure income can be from a state pension or other pension schemes and does not need to be inflation proofed. Investment income does not count. Should the pension member die whilst the pension fund is in either form of drawdown, the remaining fund can provide an income for a spouse or dependant, or passed to a beneficiary as a lump sum, subject to a 55% tax charge (currently 82% if paid after the pension holder is 75). No tax applies if the individual is under 75 and is not in drawdown.

Compulsory lifetime annuities have not been changed and will remain the preferred option for many because, unlike drawdown, they provide a secure lifetime income.

For specialist pension and retirement planning advice contact our Financial Services team on 01206 217309 or email