A positive overhaul for pensions, perhaps ?

Last week saw Government proposals to shake up the pension system once again, and in a way that is likely to see some radical changes – yes more !

2006 is not that long ago. It was then, when we evidenced the biggest shake up of pensions for a generation and saw the introduction of a whole new pension tax system, that attempted to simplify pensions, and encourage greater saving for retirement.

Since then, some very complex rules have been introduced, targeting high earners and placing restrictions on contribution levels.

Our new coalition Government started their term with an emergency Budget which introduced proposals to change contribution limits and increase the age at which you had to buy an annuity.

I spend much of my working week talking to clients about pensions and delivering plans that help people achieve their retirement goals, and it is very encouraging to read about these recent proposals.

We have some seven million people in the UK who are likely to retire with either none or very little savings, so the implementation of changes that can offer more reasons to save are welcome.

The key proposals and consultations we have seen introduced over recent months are:
An annual contribution allowance for all people saving for retirement. This is likely to be in the region of £30,000 to £45,000. It will be on this amount which you can receive tax relief.

We saw an increase in the age at which you have to buy an annuity with your pension fund, from 75 to 77, with last week the Government announcing its intention to scrap altogether the need to buy an annuity.

The ability to take an unlimited amount of income from your pension fund in retirement, as long as you first secure a minimum level of income of about £10000 per annum.

The removal of the current flexibility to not take an income from your pension fund, if you do not buy an annuity, once you have taken your tax-free cash sum.

A potential larger tax bill for your dependants if you die whilst drawing an income from your pension fund. Currently, the tax charge is 35% of the fund if it is taken as a cash lump sum. This could increase to 55% if proposals are implemented – clearly bad news for your children and grandchildren if you wanted to leave them most of what was left in your pension fund. Dependents can escape this charge by taking the money as an income.

All proposals remain open to consultation, but much of what is proposed looks very much like a step in the right direction. As always, pensions form an essential ingredient of retirement planning and once again these new proposals enforce the need to continue to get professional guidance and help.