Life after A-day
It’s more than a year since pensions simplification was introduced. A-day (6 April 2006) saw dramatic changes to the legislation and regulations governing all types of pension schemes, and, among other things, introduced an overall cap for the amount of pension funds an individual could accrue.
So what has changed? Well, the main changes introduced were:
1. An increased annual contribution allowance, currently £235,000 for the 08/09 tax year.
2. An overall Lifetime Allowance, currently £1.65m for the 08/09 tax year.
3. More flexible options at retirement. There were, of course a huge number of other changes, but we will concentrate on these three for now.
Annual Allowance
This year an employee has been able to receive full tax relief on their personal pension contributions up to £3,600 or 100% of their earnings, whichever is higher. The total pension contributions that can be made on behalf of an employee, without being treated as a benefit in kind, has been capped at £235,000 (2008/09) per pension input period. This appears to have been well received, and a large number of people have increased their contributions as a result.
Lifetime Allowance
If the total value of an individual’s pension funds exceeds the Lifetime Allowance, an effective tax charge of 55% will be made on the excess. The Lifetime Allowance is currently £1.65m and will increase to a pre-determined level each tax year, as will the annual allowance. For individuals who already had pension funds close to or in excess of £1.5m at 6 April 2006, there are a number of ways to protect against this tax charge. This was well publicised both before and after April 2006, and many people have taken action accordingly. If you think you are likely to be affected, you have until 5 April 2009 to make an application for Protection – though it is advisable to act as soon as possible to ensure you are eligible.
Flexible retirement options
A number of new retirement options have been introduced. Of these, Alternatively Secured Pension (ASP), a sort of Income Drawdown after age 75, has caused quite a stir. Basically, ASP removed the need to purchase an annuity with your pension funds at age 75. However, the Government has subsequently removed the ability to pass ASP benefits on death to non-dependants with the potential imposition of an 82% tax charge. If you think you will be affected by this, you should seek advice as soon as possible.
If you would like to find out more information about the A-Day legislation please click here to contact us.
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