Paul Lewis
From April 2011 the same rules will apply to those over 77 as to younger people. The treasury estimates that only 50,000 people will benefit now and 12,000 a year in future
From April, one regime will apply to everyone from the age of 55 – when access to a company or personal pension fund can begin. Under the new rules no one will have to buy an annuity – an income for life – at any age. Instead they can put their money into what is called a “drawdown” plan and can take income from it.
People with less than £20,000 a year of guaranteed pension income will be subject to what is called “capped drawdown” and will only be able to take out an annual amount roughly equal to the flat single-person annuity they could buy with their fund.
For the minority lucky enough to have £20,000 or more guaranteed retirement income, life is much freer. That income can be made up of the state pension, any pension paid by an employer, and an annuity. Those with £20,000 or more will be able to put any further pension funds into an unlimited drawdown plan.
They will be able to take any amount out of their plan – the whole lot if they want. Any withdrawals, though, are taxed as income. Large sums may be at least partly taxed at 40%; very large sums at 50%.
All drawdown plans carry annual charges – from 0.5% to 2% a year. So for the vast majority the best choice will still be to buy an annuity: either one that lasts all your life or one that allows a rethink every five or 10 years.
If there is money left in your fund when you die, you can leave it tax free to charity. If you leave it to your heirs it will be taxed at a flat rate of 55%, but will not be subject to inheritance tax as well.
Written by Paul Lewis, this article was first published in the February 2011 issue of Saga Magazine. Paul's opinions are his own and for general information only. Always seek independent, professional, financial advice.