Government to scrap Compulsory Annuities
Legislation outlined in The Draft Finance Bill 2011 by the Government has confirmed plans to scrap rules forcing everyone to use pension savings to buy an annuity by the age of 75.
The new rules, which will apply from the start of the next tax year, will allow investors to defer taking benefits from their fund indefinitely, or draw down an unlimited income if they can prove they have a minimum lifetime pension of at least £20,000 a year.
This income can include the state pension, income from a final salary pension and annuities. Under current rules, the estimated 7.8 million people who are currently saving through a defined contribution pension and those with a personal pension have to use their personal pot to buy an annuity, which provides them with an income for the rest of their life by the time they are 75.
When the rule was introduced in 1976, the average man reaching the age of 65 was only expected to live for another 13 years. Today men in good health have a further 21 years of life expectancy.
The changes will take effect for all new drawdown pension arrangements made on or after 6th April 2011. For those already in income drawdown, the changes will be staggered and will be dependent on your age and the next review date for your existing income drawdown plan.
The Government also announced that any money left in a pension fund if the investor dies after their 75th birthday will be taxed at the rate of 55%. Unused money left in a draw down pension fund belonging to an investor who dies before the age of 75, will remain tax free.
If you want further information about how this new legislation may affect you, contact one of the team who will be happy to help.