Weighing up your options

With less than a year left before the introduction of pension tax simplification on April 6, 2006 known as A-Day, it is crucial that you receive unbiased independent advice which can guide you through the minefield that could lie ahead for the unwary and unprepared.  Our service includes collating all of your current and previous pension arrangements and calculating their total monetary value. If you have deferred (retained) benefits from the scheme of a former employer, we will also get in touch with the trustees on your behalf, as valuations can take several months. 

Additional funding Once we have completed this exercise we can help you decide whether there is scope for additional funding before A-Day, and in particular enable you to discover whether you could increase your tax-free cash entitlement. A clear picture of your total pension value will also help you determine whether you should apply for "protection" against the 55 per cent tax that will apply on funds in excess of the new "lifetime allowance" of £1.5m (in 2006-2007). Under the new rules, the minimum retirement age will rise from 50 to 55 by the year 2010 but, in most cases, it will be possible to preserve your existing rights if this is part of a contractual arrangement.

Investment control If you are looking for greater investment control over your fund, one option to consider is a self-invested personal pension (SIPP), which allows you to invest in collective funds, equities and bonds, commercial property, and, after A-Day, also residential property.  Using a SIPP to move into income drawdown (unsecured pension) in retirement allows you to keep your fund fully invested and to draw an income directly out of your fund. It also could offer considerable scope for estate planning, as it is possible to pass on your remaining fund on death to your heirs, after a 35 per cent tax charge. From A-Day it will be possible to continue in a more restricted version of drawdown using the new Alternatively Secured Pension (ASP) rules. If you are an owner-director we can assist you with more specific advice, as your funding choices before A-Day may be very flexible but after A-Day could become more limited.

What Pensions Simplification means to you Many people stand to gain improved benefits and greater flexibility as a result of Government proposals to simplify pension planning.  The main Government proposals are as follows: A single pension regime  Eight different sets of pension rules are to be simplified to just one in an effort to encourage people to save more for their retirement. One limit for benefits and contributions Contributions In future you will be able to contribute all your salary or earnings to a pension in each tax year and get full tax relief on it. The "basis year" for contributions will be abolished. Companies will be able to contribute up to £215,000 a year (£235,000 a year by April 2010) for every employee; irrespective of their salary (this limit includes employee contributions). Annual increases in defined benefit rights will be valued by a factor of ten against the annual limit, an excess will be taxed at 40 per cent. Those without earnings, aged under 75, can continue to contribute up to £3,600 gross each year. Carry back and carry forward elections will be abolished.

Benefits A new lifetime benefit limit, which will include all pension benefits from all sources, will start at £1.5 million and rise progressively to £1.8 million by April 2010. This allowance can be utilised in stages or all at once. 

If your pension benefits could exceed the lifetime limit you should act now to clarify your position especially if you want to protect against the future tax reclaim charge of 55 per cent which will apply to excess funds. Two forms of protection will be available - Primary Protection and Enhanced Protection.

• If you are near or above the lifetime limit and plan to make large additional contributions before A-Day, then opting for Enhanced Protection may be your best option.  If you don't have a substantial fund, the relaxed contribution limits after A-Day may be a very attractive way to boost your pension provision tax efficiently. Tax Free Cash Tax free cash is to be standardised at 25 per cent of your pension fund value - irrespective of scheme type. 

• If you are nearing retirement it may be worth taking tax free cash after April 2006 to make the most of the new allowance. 

• Check if your occupational pension benefits have tax free cash entitlements greater than 25 per cent of the fund value so you can protect them appropriately. 

Drawing Pension Benefits The Government is proposing a range of alternative annuities to increase flexibility and, in particular, to offer Money Back guarantees. We can discuss the various options available to you.  Investment You will be able to hold residential property, including holiday homes, within your pension fund. The Government even proposes to allow the buying and selling of properties between individuals and their pension funds, and for individuals to occupy the properties held in their pension funds (subject to open market rents and valuations applying).

• Holding a second property as an investment in a pension fund could be very attractive because of the tax efficiency. 

For an independent and unbiased review of your situation - please e-mail or contact us for further information. Levels and bases of, and reliefs from, taxation are subject to change.