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You may have read within the financial pages of the newspapers over the last couple of weeks that the Government have announced many changes to Pensions Legislation.  One of these is what is known as a “drawdown” policy and may affect you if you are planning to move into the “drawdown” scenario.

These changes are effective from 6th April 2011.

A summary of the changes are below:-

• Removal of the need to purchase an annuity with your fund by the age of 75.
   
• The maximum level of income that you are allowed to have will be decided upon by the Government Actuarial Deparment and will now be reviewed at least every 3 years (previously 5 years) until age 75, and then annually thereafter.
   
• The maximum level of income you will be allowed is going to reduce from 120% of the Govenment Actuarial rate for your age, to 100%.  For clients already in drawdown the new maximum will apply from the next 5 year review, or the first review following age 75 if sooner.
   
• A tax charge of 55% will be applied to lump sum paid on death, if you are already taking an income from your pension fund, or have taken your tax free cash, unless there are no dependants and it is paid to a charity.  However, the remaining funds will not be added to your Estate for Inheritance Tax Purposes.
   
• There will be no tax charge applied to lump sums paid on death where no imcome or tax free cash has been taken until the age of 75, where it will become 55% unless there are no dependants and it is paid to a charity.
   
• Any tax free cash that is available can be paid at any time after the age of 55 (in most cases), even past the age of 75.
   
• Lump sums paid as serious ill health lump sum will also be taxed at 55% after the age of 75.
   
• Where an individual can satisfy the Minimum Income Requirement (MIR) they may take any level of income from a new developmental product called a “flexible drawdown arrangement”
   
• The individual must have a minimum income of at least £20,000 per annum which must be received from the list below:-
• - State Pensions
  - Lifetime annuity or dependant’s lifetime annuity
  - Scheme pension or dependant’s scheme pension
  - Overseas pension payment equivalent to a lifetime annuity or scheme pension.
   
• The minimum Income Requirement cannot be satisfied by drawdown payments, dependant drawdown payments or overseas pensions equivalent to drawdown.
   
• Once in flexible drawdown no further tax relievable pension contributions can be made to any pension scheme and an investor cannot remain an active member of a defined benefit scheme.

If you would like any advice regarding any of these changes, please contact the IFA team on 01473 408422 or email ifa@wmibl.co.uk

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