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Full Private Banking Advice
Keith Edwards
James Johnsen
Amanda Loram

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Graham Hughes

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Stephanie Bebbington-Dyke
Peter Burton

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Phillip Slade

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Sue Best

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Karen Blake

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Ann Hallett

Pension Benefits

As well as a tax-efficient method of saving for later life with wide investment powers, Small Self-Administered Schemes (SSAS) and Self-Invested Personal Pensions (SIPP) are a flexible way of providing pension benefits.

On Death

Benefits are paid differently depending on crystallisation, age and civil partner/spouse/financial dependant status.

Pre-75 benefits not crystallised:

• Up to the prevailing Life Time Allowance, payable as a lump sum free of Inheritance Tax.
• Any fund above prevailing Life Time Allowance is taxable at 55% unless used for dependents/spouses/civil partner pension.

Pre-75 benefits crystallised in Pension Fund Withdrawal (PFW):

• Spouse/CivilPartner may continue receiving Pension Fund Withdrawal based on their age, gender and prevailing Government Actuaries Department (GAD) rates.
• Spouse/civil partner may purchase an annuity.
• Spouse/civil partner may immediately take 65% of fund as cash, remainder sacrificed as taxation.
• If no spouse/civil partner, or spouse/civil partner deceased, 65% available to beneficiaries under member’s ‘Expression of Wishes’ held by the administrator.

Post-75 within Alternatively Secured Pension (ASP):

• Spouse/civil partner may purchase an annuity or continue with Pension Fund Withdrawal.
• Dependent’s pension can be paid (subject to age and medical conditions).
• Fund can be paid as a ‘transfer lump sum death benefit’ after paying Inheritance Tax on the fund; to other members of the scheme (this can include family members).
• Remaining fund can be paid free of Inheritance Tax to a registered charity

Alternatively Secured Pension death benefits must be paid in the following priority:

• Spouse/Civil Partner
• Financial Dependent
• Transfer Lump Sum Death benefit/Registered Charity donation.

Retirement Age

The minimum age at which benefits can be taken will rise from 50 to 55 from 2010. Those with ‘contractual rights’ before December 2003 will be allowed to continue to retire before 55.

Tax-Free Lump Sum

The maximum Tax-Free Lump Sum from a pension will be 25% of the value of the fund. There are transitional arrangements within the legislation for those with Tax-Free Lump Sums greater than 25% accrued before April 6th 2006.

Income in Retirement

After A-day, members do not need to cease working in order to draw benefits from their pension scheme. There are four ways to pay the income:

Lifetime Annuity can be purchased on the ‘open market’ from an insurance company to provide a pension income that can include:

• Guarantees of income for up to ten years
• Spouses/Civil Partner, dependents benefits and indexation.

Pension Fund Withdrawal can be used to provide an Unsecured Pension and can continue until the member reaches 75 years of age. The maximum income is 120% of the income determined by the tables provided by the Government Actuaries Department (GAD). The rate applied to the fund is reviewed every five years. There is no minimum income that must be provided.

Pension Fund Withdrawal can be continued beyond 75 via an Alternatively Secured Pension. The maximum pension is 70% of the appropriate rate from the GAD tables for a 75-year-old, irrespective of the member’s actual age, and the scheme is compulsorily reviewed annually. There is no minimum income payable.

Scheme Pension is an alternative to lifetime annuity that can be considered by trustees of Small Self-Administered Schemes. The level of income is set in relation to annuity rates, with the intention that it will be maintained throughout the member’s lifetime. The income cannot be reduced unless the same proportionate reduction is applied to all members. A reduction by more than 20% may give rise to a tax charge.

Investment choice will be critical to the success, or otherwise, of Pension Fund Withdrawal in the form of Unsecured Pension, Alternatively Secured Pension and Scheme Pension, as there are conflicting requirements between the needs for growth and security. The balancing of these requirements is not easy and professional advice on investments is therefore essential to the success of your plan.