Latest Changes to Pensions Legislation

The Treasury has now released the draft of the proposed changes to pensions legislation from 6th April next year.

Most of this draft legislation reflects what was announced in October – in summary, those changes were:

There will be no restriction of pension tax relief for additional rate tax payers
The Lifetime Allowance will be reduced from £1,800,000 to £1,500,000.
The Annual Allowance is reduced from £255,000 to £50,000
It is now possible to carry forward unused Annual Allowance for up to three years
It will no longer be possible to exceed the Annual Allowance tax-efficiently in the year pension benefits are crystallised, other than by using the new carry forward reliefs

As well as implementing the above, the new draft legislation also introduces the following changes:

The effective requirement to annuitise by age 77 (previously 75) will be removed
Maximum income in drawdown will be 100% GAD regardless of age
If a client certifies they have a remaining guaranteed lifetime pension income of at least £20,000 per annum (including state pension benefits), there will be no cap on pension withdrawals
Pension Commencement Lump Sum can be taken at any age after normal retirement age and no longer has to be taken by age 75
The link to lifetime allowance for trivial commutation is broken, so those with total pensions of no more than £18,000 will still be able to treat them as trivial
The link to lifetime allowance for protected tax free cash is also broken, removing the worry that a client with protected tax free cash would find the protected amount was reduced on 6th April 2012
55% total tax on lump sum death benefits regardless of age
Provided the pension scheme trustees have discretion on where to pay the benefits, there will be no Inheritance Tax on pension lump sum death benefits regardless of whether or not the pensioner deliberately increased the value of his estate by not taking benefits
The Annual Allowance charge will now be linked to the individual’s marginal tax rate rather than a flat 40% .