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Pensions have gotten a lot simpler
Finding A Pension IFA
Pension Simplification and what it means to your pensions savings
From 6th April 2006, so-called “A-Day” or pensions simplification, life got simpler for retirement savers as the government brought in a new simplified set of rules, effectively shelving the eight previous tax frameworks for pensions.
One change is that all pension policyholders will be able to take 25% of the value of the fund as a tax-free lump sum, when they come to take benefits. This levels the playing field between different pensions.
It’s a good idea to re-consider which pension arrangements are the most attractive to you with the help of an expert IFA.
Another new rule is that you and your employer will be able to pay up to one annual allowance into your pension. This amount is up to 100% of your earnings and for the tax year 2008/09 is capped at £235,000, with the limit set at £3,600 for low or non-earners paying into personal and stakeholder pensions.
A further move designed to encourage us to save more is the greater ease with which people can save into a number of different pensions at the same time under the new rules.
As well as the annual allowance, there is also a limit on your entire pension savings, including any private pensions, occupational pensions and free-standing additional voluntary contributions.
In the tax year 2008/2009 this amount is £1.65m, with the threshold expected to rise over the years to allow for the impact of inflation.
Introducing one lifetime limit for pension fund size effectively bins the sometimes complicated calculations savers could be forced to work through.
If you exceed £1.65m, you will be hit by the new lifetime allowance charge, or recovery tax, which will be charged at up to 55%.
A pension fund of more than £1.65m might sound like the preserve of the very rich, but it is likely that more individuals than they realise will be in danger of breaching the lifetime limit.
If you have already breached the £1.65m threshold or are concerned about doing so, you are strongly recommended to seek professional advice.
Pensions Simplification and what it means to your pensions savings
Changes to the State Pension
Personal Accounts – the new workplace pension plan from 2012
