Budget June 2010

With effect from 6 April 2011

Consultation paper issued July 2010 Draft legislation and explanatory notes issued 9 December 2010

Finance Bill issued on 31 March 2011, expected to have retrospective effect from 6 April 2011

Draft regulations issued May 2011

Consultation ends on 24 June 2011

The draft Registered Pension Schemes Provision of Information (Amendment) Regulations 2011

The draft Registered Pension Schemes (Authorised Payments) (Amendment) Regulations 2011

The draft Registered Pension Schemes (Authorised Surplus Payments) (Amendment) Regulations 2011

The draft Pension Benefits (Insurance Company Liable as Scheme Administrator) (Amendment) Regulations 2011

The draft Registered Pension Schemes (Meaning of Pension Commencement Lump Sum) (Amendment) Regulations 2011

The obligation to purchase an annuity by age 75 (now extended to 77) has been removed with effect from 6 April 2011.

Points to note are:

  • The alternatively secured pension rules have been repealed for new and existing pensioners.
  • The maximum income that an individual may withdraw from most drawdown funds has been capped at 100% of the equivalent annuity (broadly, the single-life level annuity that could have been bought with the individual’s fund using rates set by the Government Actuary's Department). Previously, individuals aged less than 75 could withdraw up to 120% of the equivalent annuity each year.
  • The maximum capped amount that may be withdrawn must be reviewed every three years until a member reaches 75, after age 75 annual reviews will be required.
  • Individuals may access the whole of their drawdown funds as pension income without a limit on annual withdrawal if they have lifetime pension income of at least £20,000 per year.
  • Where a scheme has accepted an application to access the whole of an individual's pension drawdown fund, any new pension savings for that individual will be liable to the annual allowance charge on all pension input amounts.
  • Most restrictions on lump sum benefits after age 75 have been removed.
  • Lump sum death benefits will be taxed at 55%, other than death benefits in respect of a member who dies before age 75 without having taken a pension (which will remain tax free).
  • With effect from 6 April 2011, inheritance tax will not typically apply to remaining drawdown pension funds under a registered pension scheme, including where the member died after age 75.
  • Previous inheritance tax anti-avoidance charges that may have applied where a member omitted to take retirement entitlement have been removed.
  • The 2011 Budget announced that the draft legislation issued in December 2010 has been amended to remove unintended differences in the pensions and lump sums payable before and after age 75.

Draft regulations have been issued which will make consequential amendments relating to the removal of the annuitisation requirement and will also:

  • make various changes to existing reporting requirements in light of the age 75 changes;
  • remove provisions which applied different rules to payments to individuals aged under or over 75;
  • remove references to alternatively secured pensions.