Scheme Pensions
Pension simplification removed the requirement to purchase an annuity at age 75. From 6 April 2006 a pension must be secured by age 75 by either:
The Government has already made it quite clear that ASP was specifically introduced "for those who have a principled religious objection to annuitisation". According to speculation and debate in the financial press the Government is "examining how best to restrict ASP to their original limited purpose". Although there are no limitations within the legislation as to who may elect to draw their pensions post age 75 via ASP, the introduction of inheritance tax liabilities in the 2006 budget on funds remaining on death past age 75 for those in ASP makes this a less attractive option.
For most, locking funds in an insurance-based annuity is not a desired option, which leaves the remaining option of a scheme pension.
There has been much debate in the press recently that scheme pensions benefit from a loophole in the newly introduced inheritance tax regulations applicable to pension schemes. However, it is clear from the HMRC Budget Note 26 statement issued earlier this year, that they endorse the use of scheme pension as a viable option for post 75 pension provisions. They state "The pensions tax simplification rules provide that an individual must secure an income before they reach the age of 75. For most people an annuity or scheme pension is the best means by which they can do this."
In addition, under scheme pension rules the member must receive a pension, unlike ASP (which could be set at 0%), and will, of course, be subject to tax. Therefore a scheme pension will provide HMRC with tax payments up front which otherwise may not be forthcoming.
A scheme pension is paid by the Administrator directly from the fund. It must be paid at least annually until the member's death. Once offered, a scheme pension cannot be reduced except in exceptional circumstances. On death, a spouse's or dependant's pension can be paid. Where there is no spouse or dependant, the fund remains an asset of the scheme and can be allocated to the remaining members, or it declared as a surplus and may be returned to the company less a 35% tax charge, subject to meeting the criteria applicable to an authorised surplus payment charge.
Rowanmoor Pensions fully endorses scheme pensions, provided the member takes proper advice from their IFA and recommendations from an Actuary on the level of sustainable income available. Scheme pensions will be a valuable option for members of trust based schemes, setting them apart from most self-invested personal pensions which do not offer scheme pensions.
Introducers can find out more about scheme pensions and how Rowanmoor Pensions can help support the retirement options advisory process by attending one of our nationwide Introducer Roadshows, which start in Salisbury on 4 October. Alternatively, please contact your usual Rowanmoor Pensions administrator or consultant, or the Rowanmoor Pensions Sales Support Team on 08445 440 550 for more information.