The Finance Act 2010 included legislation to restrict pension tax relief given at above the basic rate on pension provision for 2011/12 onwards by high-income individuals. The Government is to continue with this plan for the time being but will also be considering, in consultation with interested parties, possible alternative means of raising the same tax revenue.
One alternative would be to significantly reduce the pension annual allowance (currently £255,000) to somewhere in the range of £30,000 to £45,000.
The Government is to include powers in the next Finance Bill to repeal the legislation contained in Finance Act 2010 – although that this is not to say the legislation will be repealed.
Once you reach retirement there are now four choices for pension annuity :
- Take a scheme pension – a secured pension for life paid out of the scheme assets or purchased from an insurance company
- Buy an annuity (an investment that provides a regular income for life)
- Draw an income directly from your pension fund, as an ‘unsecured pension’ before age 75
- Draw an income directly from your pension fund, as an ‘alternatively secured pension’ from age 75
All types of pension schemes are now allowed to pay a tax-free lump sum of up to 25 per cent of the overall value of your benefits. This is provided there is provision in the scheme rules, to an overall maximum of 25 per cent of the lifetime allowance. You are not entitled to a tax-free lump sum once you reach age 75.
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