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Did
you know that you could defer purchasing your annuity until
the age of 75 and at the same time draw an income from your
fund - while your remaining pension fund has the potential to
grow? With annuity rates paying low levels, many people have
seized on this opportunity as a way of generating additional
income.
Pension fund withdrawal plans, specifically the withdrawal of
an income from them, cannot commence until at least the age
of 50, apart from certain qualifying conditions.
Withdrawing income
There are, however, certain restrictions that the Inland Revenue
stipulates. For example, the amount of income you can withdraw
each year from one of these schemes is limited to between 35
and 100 per cent as determined by the Government Actuary Department
(GAD) limits. This rule is designed to prevent you from depleting
your funds by withdrawing too much.
The maximum tax-free cash available can be withdrawn from the
outset, but if the option to take this isn't exercised at the
time, it is lost.
By deferring the purchase of your annuity in this way, you may
be able to secure a better annuity rate as you get older because
of your then shorter life expectancy, or if annuity rates increase.
However, if annuity rates do not rise or if the fund reduces
in value, the annuity purchased may not be as high as could
have been purchased at the outset.
Flexible options
An advantage of pension fund withdrawal is that it allows your
pension fund to pass to your dependants or your estate if you
die before purchasing an annuity. Even though the fund is taxed
at 35 per cent, it can normally be passed free of inheritance
tax to a wide range of potential beneficiaries using the scheme's
discretionary death disposal rule. This could be an attractive
option if you are in poor health, have a younger spouse or have
a substantial fund.
Other options (if you die before purchasing an annuity) are
for your spouse to continue with income withdrawals until the
earlier of your spouse reaching age 75 or when you would have
reached age 75 had you not died. At that point the surviving
spouse must buy an annuity with the remainder of the fund.
Article date January 2004 |
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If
you would like to discuss how this facility could
work for your current situation, please e-mail or
contact us for further information.
Payments received under a pension fund
withdrawal plan are not income payments but withdrawals
of capital which may have the effect of reducing your
pension fund, which could result in a lower income
when the annuity is eventually purchased. |
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