Are You Thinking Of Retiring?

Consider waiting another year...

From April 6 2006 there will be a number of radical changes to the regulations governing pensions, and, so, it may be worthwhile postponing any thoughts of retirement until after that date.

The changes that could affect your retirement.

1: An individual will be able to contribute up to £215,000 each year to their pension scheme. This figure will rise to £255,000 per annum by 2010. There will be a tax-free lifetime limit on all contributions for £1.5m rising to £1.8m by 2010.

2: Some occupational pension scheme members will be able to take up to £375,000 (or up to 25% of their lifetime allowance of £1.5m) from their pension fund tax-free, provided that they joined their scheme after 1989. At present the maximum tax-free sum that can be taken from the pension fund is £153,000.

3: Those individuals that have made additional voluntary contributions (AVCs) will be able to take out up to one quarter of their AVCs tax-free, provided that their pension scheme trust deed allows for this. If it does not then you should ask the trustees of your pension scheme whether they will be amending the trust deed. At present all monies introduced as an AVC can only be converted into an annuity.

4: At present there are limits on how much your employer can contribute to your pension fund, and these are linked to an individual's earnings or length of service. these limits will be removed but if the contribution exceeds £215,000 you will be subject to tax penalties.

5: In the year of your retirement unlimited contributions can be made by you and your employer, however, if any of these contributions exceed 100% of your earnings, you will not be able to claim tax relief on the excess. Note also that any such contributions will be included in computing your lifetime allowance of £1.5m (see point 1)

6: Individuals will find it much easier to top up their pension fund after 6 April 2006. An individual will get up to 100% tax relief on your earnings on any amounts introduced to your fund up to the annual limit of £215,000 (see point 4). Note that 'earnings' does not include dividends.

7: The present restrictive rules relating to the purchase of annuities will be abolished on 6 April 2006 and there will be more flexible rules, including money back annuities and limited period annuities.

8: From 6 April 2006 the maximum death benefit could be as high as your lifetime allowance of £1.5m.

9: Limits on the size of any pension payments to dependents will be removed. Dependents are defined as your spouse or any children aged under 23.

10: It will be more efficient to top-up your term assurance policy, as tax relief will be given for term assurance premiums paid via your pension fund.

Advice: From the points above it will seem that there are some extremely attractive changes due to take place from 6 April 2006. If you are able to control the date of your retirement, it may be better to wait until this date.