By April 2010, the minimum age at which you’ll be able to take your company or personal pension will have increased from 50 to 55. You can put off taking it until age 75.
However, you may still be able to take your pension before age 55 in certain circumstances, for example if you are unable to work due to ill-health. Your pension administrator will be able to tell you what your scheme allows.
From April 2006 there is more choice for how and when you can take your pension benefits. But bear in mind that pension schemes are subject to individual rules so you’ll need to check with your pension administrator what your particular scheme allows.
From April 2006 you can take up to 25 per cent of the value of your total pension savings from all sources as a tax-free lump sum when you retire, up to a maximum of 25 per cent of the ‘lifetime allowance’ for that tax year.
For the tax year 2006-2007 the lifetime allowance (tested against your total pensions savings) is £1.5 million, gradually rising to £1.8 million by 2010-2011.
If your total pensions savings exceed the lifetime allowance you can still take up to 25 per cent of the total as a cash lump sum, but the element that comes from the excess is subject to 55 per cent tax charge.
From April 2006 if your total pension savings from all sources is £15,000 or less (one per cent of the ‘lifetime allowance’) you may be able to take the whole amount as a cash lump sum, with 25 per cent tax-free.
The limit for being able to take the whole fund in cash will gradually rise to £18,000 by the 2010–2011 tax year.
You have the following options (after you’ve taken any tax-free lump sum):
If your total pension savings have exceeded the lifetime allowance, the excess amount is taxed at 25 per cent; income taken from your pension pot will then be taxed at your usual Income Tax rate
For more information on ways to take your pension from April 2006 visit the Financial Services Authority (FSA) website.
The income you get from an annuity depends mainly on the size of your pension fund and how long the annuity is expected to be in payment. It also depends on the pension provider. Because you don’t have to buy an annuity from your own pension provider, it’s important to shop around to get the best deal.
Common types are:
Unless you have a sound understanding of personal pensions, you should consider getting professional advice on the options available. You can get general information free of charge from many organisations. Read ‘Getting information and help with pensions’ to find out more.
However, only advisers authorised by the Financial Services Authority (FSA) can offer you pensions advice. They will look at your circumstances and recommend the most suitable product for your needs.
