Abolition of Annuitisation

The confirmation by the government of the ‘age 75’ changes, which will be introduced from 6 April 2011, has opened up two potential tax year end planning opportunities where an individual is either already taking drawdown, or is actively considering drawdown and looking to take maximum income.

Once the new rules take effect from 6 April 2011 the maximum drawdown will be reduced from 120% to 100% of the relevant annuity rate. In addition it is understood that the Government Actuary’s Department will shortly be issuing revised rates, which are likely to be lower than under the current table. The combined effect of these changes could result in a lower maximum income. However, it may be possible to maintain that higher income for almost 5 years as the new rates will not take effect until the fifth anniversary of any existing unsecured pension review period that was in place prior to 6 April 2011.

For anyone who is currently considering setting up an unsecured pension, bringing forward that crystallisation date to before 6 April 2011, and therefore locking in the higher maximum income level until the fifth anniversary of the commencement date, may be attractive.

Similarly where a member is already taking an unsecured pension, and has an anniversary of the five year review date due before 6 April 2011, he could make an election to his provider to commence a new five year review period from that anniversary once again locking in the higher drawdown income until the fifth anniversary of the revised review date. It should be noted that such an election can only be made before the anniversary date concerned.

It should be noted that special provisions apply where a member reaches age 75 before the fifth anniversary of the last review date prior to 6 April 2011. In this case the new drawdown maximum limits will be applied from the first anniversary, of the most recent review, falling after his 75th birthday.

If you any questions about your pension and annuities, please do get in touch on 020 3865 2379.

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