Pensions - 5 Things To Know Now

Those clients with Skandia pensions will have received a mailing from them over the last few days. In essence this outlines the new pension rules that have come into operation from 6th April 2011. The document is well written and quite clear, but it terribly wordy and dull looking - which will undoubtedly put many people off from reading it. So the key points - which apply to anyone with a pension are as follows.

1. The lifetime allowance (the total permitted value of your pension pot) will be reduced from £1.8m to £1.5m but this does not start until 6th April 2012.

2. The amount payable into all of your pensions is capped at £50,000 or 100% of your earnings (whichever is lower). However ANYONE under 75 can invest up to £3,600 towards a pension even if they have no income AND will receive tax relief at 20% - meaning that the amount paid is £2,880 with £720 provided as basic rate tax relief.

3. There is now a facility to use up (carry forward) any unused contribution allowance going back over the three previous years and assuming a maximum of £50,000.

4. There is now no requirement to buy an annuity by age 75, although in practice the great majority of people will. Remember that an annuity is simply a guaranteed income for life.

5. Provided that you have secured income of £20,000pa (which might include a State Pension) you can take the value of your pension pot as you like using the new flexible drawdown rules. You pay income tax on the money as though it was earned, but this does mean that you can effectively strip out your funds from personal pensions. This is ideal for many of our clients who want to control their income flow and tax payments.

There are other alterations, but frankly these are not that relevant to most people and I am happy to explain these in detail if required. One thing that has caused some confusion relates to tax free cash. At the moment all personal pensions (in their various forms) provide 25% of the fund as a tax-free lump sum. This has not been altered - contrary to some media speculation and suggestions.