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Pensions Simplification
With effect from 6 th April 2006 (A day) there is a major change in pensions legislation many of the existing rules will be swept away.
Post A day contributions - Overall Lifetime Limit initially £1.5 Million, Annual allowance £215,000 per annum for company, 100% earnings for employee. No annual limit in year of retirement.
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Self-investment in own company shares limited to 5% for company sponsored scheme up to 100% if no company link.
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Loans to employer for company sponsored schemes only limited to 50% fund and must be secured.
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Death benefits-the new regime will allow tax-free lump sum death benefits up to the lifetime cap and taxable benefits above.
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Current Investment restrictions will be removed allowing virtually anything to be held within a pension fund e.g. Residential Property, Antiques, Unquoted shares.
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Annuity purchase- there is no proposed requirement to buy an annuity. Up to 75 drawdown from fund allowed. At age 75 apart from an annuity the other option is Alternatively Secured Pension (ASP), which is a form of drawdown but with lower maximum income than the current version and no lump sum death benefits post age 75 although unused funds may transfer to another pension plan i.e. unused funds may be transferred to SIPP arrangements for your chosen beneficiaries.
For borrowing to buy property however there is a major unwelcome change as the borrowing limit will be 50% of the fund. For example if you have £100,000 pension fund at present you can borrow via a SIPP and purchase a £400,000 property. Post 6 th April 2004 you can only borrow 50% fund i.e. £50,000 so you can only buy a property worth £150,000!
Pre A day action
For large funds protection can be taken to avoid any recovery charge, the scheme has to pass certain tests to meet the requirements.
If you have a company scheme this may offer a tax-free lump sum of more than 25% of the fund, this can be lost after A day if the amount is not certified and if you are not in the right type of arrangement.
The borrowing and lending rules are less attractive post A day
All these are areas where you may need expert help that we can provide.
A Day Tax Free Cash - Standard Letter
Contact Central Financial Planning Ltd for further information
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