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NEWSLETTER: Pensions post 6.4.12 – the new Rules explained

Contributed by MW Pensions
22 May, 2012

Contributed by MW Pensions. [www.mwpensions.co.uk]

This Newsletter is intended as technical support for financial and other professional advisers. Members of the general public should not rely upon it

The Rules post 6.4.12

Now that we are past 6th April 2012, we thought it might be useful to remind advisors what the rules are as they now apply to Registered Pension Schemes.

Annual Allowance
This is £50,000 and is the total of the contributions paid by or on behalf of a member across all the Registered Pension Schemes of which they are a member. The Annual Allowance will not increase until at least 2015/16, when it may be reviewed by HMRC and the Treasury.

Lifetime Allowance
This is £1,500,000 and is the aggregate across all the Registered Pension Schemes of which they are a member.

What about Protection?
Members had until 5.4.2009 to apply for Primary and/or Enhanced Protection. They had until 5.4.2012 to apply for Fixed Protection. So it is now too late for anyone to apply for any of the 3 types of Protection available. It was not possible for someone with either Primary or Enhanced Protection to apply for Fixed Protection. A reminder too that anyone with Enhanced or Fixed Protection cannot make any contributions (or they will lose that Protection). Those with Primary Protection can make contributions, but if their pension assets exceed their personal Lifetime Allowance at a Benefit Crystallisation Event, they will be subject to tax on the excess.

What about tax free benefits?
A member can still take up to 25% of the value of their uncrystallised fund as a tax free “Pension Commencement Lump Sum”.

What about income drawdown?
A member can take their non-lump sum benefits as income via any or a mixture of the following routes:

  1. Income drawdown, with the member choosing the level of income they wish to receive between zero and 100% of the GAD rate – and this applies at ALL ages, including post age 75.
  2. Annuity purchase
  3. Flexible drawdown – provided they meet the Minimum Income Requirement of £20,000 per annum

When can benefits be taken?
At any time on or after the member’s 55th birthday. Note that there is no longer any requirement for benefits to be taken before age 75 – but there are death benefit issues if benefits are not taken by age 75 – see below.

What happens on death?
If a member dies before age 75, their uncrystallised funds can either be paid out tax free as a lump sum or alternatively can be paid out via income drawdown or annuity purchase to any dependant. Any crystallised funds are used to either provide income drawdown (or annuity purchase) to any dependant(s) or can be paid out as a lump sum, subject to tax at the rate of 55%. If there are no surviving dependants a lump sum is paid out, and is subject to 55% tax.

If the member dies on or after their 75th birthday, the remaining fund is used to either provide income drawdown (or annuity purchase) to any dependant(s) or can be paid out as a lump sum, subject to tax at the rate of 55%. If there are no surviving dependants a lump sum is paid out, and is subject to 55% tax.

However, if a lump sum payment is made, on death, to a pre-nominated charity, zero tax is due in respect of that payment.

No death payments from a Registered Pension Scheme are additionally subject to Inheritance Tax.

Death benefit payments must be made within 2 years of the date of the memberÂ’s death.

Payments can be made “in specie” rather than cash – so that if, for example, the assets included a commercial property, that property could be paid out “in specie” as part of a lump sum death payment.

Note: the tax free exemption for payments to pre-nominated charities is an opportunity for advisors to discuss with their clients whether it may be more tax efficient for any planned charity payments to be made on the member’s death from the pension scheme rather than out of the Estate (though it must be borne in mind that payments from a pension scheme will be at the discretion of the trustees, so any “nomination” will not be legally binding on the trustees).

What about Protected Rights?
They ceased to exist from 6.4.12, so any previous Protected Rights can be treated now in exactly the same way as non-Protected Rights, although some providerÂ’s systems may not be updated to reflect this (but ours are).

A slight relaxation of Trivial benefits
As from 6th April 2012, benefits from a personal pension scheme with a value of less than £2,000 can be commuted in full on or after the member’s 60th birthday, provided it fully extinguishes the member’s entitlement to benefits under the scheme and provided the member has not previously received more than one similar commutation from a personal pension scheme under the triviality rule – in other words, no member can receive more than two 100% commutations from all their personal pension schemes. 25% of the total value of uncrystallised benefits being commuted will be tax free. Any crystallised benefits and the balance of any uncrystallised benefits will be taxed as income at the member’s marginal rate.

So SIPPs are still appropriate?
We firmly believe that SIPPs are the right long term pension savings vehicle for some people.

Why choose the MW SIPP?
Our fees are clear and upfront – no hidden extras!

The annual fee is 1% of the SIPP fund, with a minimum of £250 a maximum of £600.

The set up fee is £350, but if the fund is less than £60,000, we waive the set up fee.

If someone has a SIPP with another Provider, we charge no take on fee when it is transferred to us.

We do not charge any investment transaction fees nor do we take any commissions from any banks or product providers etc. Similarly, if the IFA arranges any transfer payments to the SIPP, we make no additional charge – if we don’t do any work, we don’t charge!

There are some areas where additional fees apply eg income drawdown calculations, property investment etc, but the extra fees are all set out in the fee agreement that the client signs when they set the SIPP up – and the extra fees are all fixed: no “time spent” fees.

And we offer high quality, efficient, personal service. We are not a call centre - the advisor always deals with the same Administrator.

If you like the sound of the above, please contact us and one of our directors will be happy to give you a call and/or visit you.

Gilt Yield for Drawdown
The gilt yields to be used for drawdown calculations are:

March 2012


April 2012


May 2012


We do not give financial advice and no comments here are intended as such. The above information is based on our understanding of the legislation governing pensions at the time of writing.  Before taking any action you should consult a qualified financial and/or tax adviser. Levels, bases of and reliefs from taxation may be subject to change.

This Newsletter is intended for professional advisors only, not members of the general public   

May 2012                            

MW Pensions Ltd
Oaklands Park
Hooton Road, Hooton
South Wirral CH66 7NZ
Tel: 0151 328 1777  Fax: 0151 328 0707  
website: www.mwpensions.co.uk  e-mail: admin@mwpensions.co.uk

Authorised and Regulated by the Financial Services Authority


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