Pension options on or after 6 April 2015
From 6 April, there will be four options available to individuals taking benefits from their money purchase fund for the first time.
- Flexi-access drawdown – this is the new form of income drawdown which will allow individuals to take taxable income from their pension fund with no upper limit.
- Taking one or more lump sums from uncrystallised funds, known as uncrystallised funds pension lump sum (UFPLS).
- Purchase a lifetime annuity.
- Scheme pension
Individuals will be able to choose any combination of the above.
Capped income drawdown will not be available from 6 April 2015 for those taking benefits for the first time.
- Customers will be able to take a pension commencement lump sum (PCLS) as per the current rules.
- The remainder of the fund can be taken as taxable income (with no upper limit).
- Taking an income under flexi-access will trigger the money purchase annual allowance (MPAA) which restricts the annual allowance
from £40,000 to £10,000.
- Taking PCLS only will not trigger the MPAA.
Uncrystallised funds pension lump sum
- Only available from age 55 or earlier where the individual is in ill-health.
- 25% of the fund will be tax-free and the remainder taxable as pension income.
- Taking any UFPLS will trigger the MPAA.
Purchasing a lifetime annuity
- Under the new rules, lifetime annuities will be able to go down as well as up.
- The current 10 year guarantee period for the payment of an annuity after the member’s death will be removed. It may continue for
any period as set out in the annuity contract.