The 2011 Finance Bill will give pension savers a greater degree of control
over how they use their retirement pots.
Under the draft laws, the obligation to buy an annuity from an insurance company by the time someone reaches the age of 75 will be dropped as from April 2011. Instead, people could cash in a greater percentage of their pension pot or opt for continued investment.
There will, however, be a limit on the total amount of money pensioners may still draw down from their pension savings at any given time. The maximum that anyone can draw in any year will be the equivalent of the single person annuity they could purchase with their pension savings.
Only those able to demonstrate that they have a pension income of at least £20,000 a year, be it a combination of the state pension and a company pension, will be allowed to draw more from their retirement pots.
In the past, savers have been confined to a maximum lump sum of 25 per cent of their pension fund on retirement, with the remainder used to buy an annuity.
By not buying an annuity, people will have the chance to retain their pension funds for longer and to bequeath extra money to their families. The new rules mean that a pension pot can be passed to a beneficiary without a tax charge if no money has been withdrawn.
Many pension experts, however, are predicting that most savers will continue to buy annuities, which guarantee an income for life.
Planning for the day that we stop working has never been more important. If you would like guidance on how best to look forward to the retirement your hard work deserves, why not give us a call?
For more information contact Bernadette Gibson at bernadette@jackross.co.uk or visit our Contact Page.