Whisper it but are pensions becoming sexy again? Arguing the toss on what defines sexy is a tricky one but what we can say is the latest consultation document from Westminster reinforces the notion that the Coalition Government are having a positive effect on pensions.
These are really big changes, not just removing the age 75 rule but replacing all income drawdown with capped and flexible drawdown options from April 2011. This is by no means a done deal as the consultation period runs up to 10th September but nevertheless this is something to get excited about.
Capped drawdown will effectively be USP under another name, income drawdown up to an annual limit with no minimum. Flexible drawdown extends this by allowing unlimited withdrawals from an individual's pension fund on the proviso that they have secured a minimum income and won't be a burden on the State if it all goes horribly wrong. Pension commencement lump sums don't have to be drawn before 75 and all lump sums on death in drawdown will be taxed at around 55% with no IHT.
This big point here is that this all applies from age 55 onwards, one set of rules and it will include those currently in ASP. The tax on death in drawdown before 75 at 55% instead of the current 35% doesn't sound like good news, but it should affect few people as most of us will live beyond 75.
Otherwise the changes all sound positive and may have a big effect on retirement planning. SIPPs and SSASs, with all their flexibility, stand to gain from these new rules. If providers have got their act together, that is. Already some providers will pay ASP but won't pay out any lump sum on death after age 75, thereby rounding up the existing 82% charge to a neat 100%. We're now being told that some providers cannot operate the transitional rules following the age 75 changes in the Budget, as they have to change their systems. At Curtis Banks full flexibility is very much the order of the day.
All very new with no doubt lots of detail to follow but after the lack of sexy football on display at the World Cup perhaps we can all rely on sexy pensions again? (no more World Cup references, I promise).
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