Back
Removal of Compulsory Annuitisation
15 July 2010
As part of this year’s Emergency Budget, the government announced that the requirement to purchase an annuity by age 75 was to be removed from April 2011. In the meantime, transitional rules would allow those individuals who reached age 75 on or after 22nd June 2010 to effectively remain in USP up to age 77 (subject to providers being able to facilitate this). A consultation paper has today been published covering the new tax rules that will need to be introduced and inviting feedback from the industry. The consultation period will run from 15th July to 10th September 2010 allowing time to formulate draft legislation ahead of the 2011 Budget. These rules are then likely to form part of the Finance Bill 2011. The key points of this document are covered below along with a link to the full document. ASP will cease to exist when these new rules come into force. Unused funds on death post 75 will be subject to a proposed recovery charge of around 55%. Alternatively, dependents pensions can be paid and will be subject to income tax as usual. Death benefits before age 75 will remain unchanged. IHT will not apply to unused pension funds on death post age 75 subject to this being monitored to prevent abuse e.g. IHT avoidance or accumulation of capital sums to be passed to beneficiaries free of IHT. The age 75 limit will be removed for the purposes of Value Protected Lump Sums, Trivial Commutation Lump Sums and Pension Commencement Lump Sums (or Tax Free Cash). Age 75 conditions in relation to the Lifetime Allowance test or the latest age at which tax relieved pension contributions can be made will remain unchanged. USP will be available in two forms – a capped USP subject to maximum income limits per annum or a flexible USP with no cap. Flexible USP will only be available to individuals who can prove that they will not exhaust their pension savings prematurely and have to rely on the state. There is a proposed Minimum Income Requirement (MIR) test for flexible USP. The full Consultation document can be accessed via the link below: http://www.hm-treasury.gov.uk/d/consult_age_75_annuity.pdf SimplyBiz Pensions Technical Direct Dial: 01484 439126 Compliance First Pensions Technical Direct Dial: 01484 439175 Pensions Technical Helpdesk: pensions@simplybiz.co.uk
