The 2014 Budget announcement brought radical changes to pension & retirement planning. The most significant change is there is no requirement to purchase an annuity.

The following is not definitive, but will give you basic information.

A Pension, especially a Personal or Stakeholder is a tax efficient flexible saving plan Everyone whether they are tax payers or not can contribute to a pension scheme and their contribution will attract basic rate tax relief at source and further tax relief is available to high rate tax payers at your marginal rate.

Contribution Limits

The maximum gross contribution without reference to income is £3,600 per annum.

The maximum gross contribution to a Personal, Stakeholder or Self Invested Personal Pension (SIPP) which attracts tax relief at your marginal rate is £40,000; contributions in excess of this will incur a tax charge.

Retirement Ages

The minimum age is 55, for those who own a Personal, Stakeholder Pension or SIPP, but if you are a member of a Money Purchase & Final Salary Scheme; they may have their own retirement age.

Options at Retirement

Final Salary

Based on the number of year’s service and usually the final year’s salary, you have the option of tax free cash and a reduced pension or just a larger pension.

Money Purchase

As above, but the options are dependent on the size of the fund.

For Personal, Stakeholder, Additional & Free Standing AVC’s and SIPP pensions, the options are 25% of the fund tax free and a reduced pension or use the whole fund to purchase an annuity.

Open Market Option

You have the option to move your Pension Fund to another provider if that provider offers a better annuity rate. There are no exit penalties.

What can you do with fund?

Buy an Annuity

These can provide both guaranteed income for the rest of your life, level escalating in payment and also an income for your spouse if you die first. If you are not in good health you could purchase an impaired annuity.

There are alternatives to a guaranteed income, such as investing the fund into a With Profit Annuity or a Unit Linked Annuity for the purpose of potential growth.

Phased Retirement

Your pension fund will usually be in segments, therefore you can take a segment or more when you require cash and or income as and when required.

Income Drawdown

Your fund can release tax free cash without the need to purchase an annuity with the residue fund remaining invested. There are restrictions on income if required and also the value of the pension fund.

Flexible Drawdown

Allow for the opportunity to withdraw as little or as much income from the pension fund, but you need to be in receipt of pension income of £12,000 per annum to qualify. The value of the pension fund could restrict this option.

Trivial Pension

If the value from all pension funds including ones already in payment is less than 1% of the Life Allowance(certain calculations will be necessary for pensions in payment). The entire fund is available to be paid with 25% of the fund tax free and the remaining fund taxed at your marginal rate.