Pension commencement lump sum
Pension
Income drawdown
Capped drawdown
Flexible drawdown
Scheme pension
Annuities
Family Pension Trust members may start to take their benefits at any time from age 55. It may be possible to take benefits earlier in cases of serious ill health.
The use of all or part of a fund to provide benefits from the scheme is called crystallisation.
A member does not have to retire or stop work in order to take benefits from the Family Pension Trust. Benefits may be taken in stages; the full value of the member’s fund does not have to be used to provide benefits at one time.
When a member takes benefits from the scheme, and at age 75 if benefits have not been taken, the total value of their pension funds held within the Family Pension Trust and any other pension arrangements they have, will be tested against the current lifetime allowance. If the lifetime allowance is exceeded, there will be an additional lifetime allowance tax charge unless the member has obtained the necessary pension protection.
When a Family Pension Trust member retires, the benefits can be taken as follows.
Pension commencement lump sum
Normally, the maximum tax-free lump sum that can be taken is 25% of the fund used to provide pension benefits, up to the lifetime allowance. Therefore, the maximum tax-free lump sum is as follows:
| Tax Years | Maximum Tax-free Lump Sum |
|---|---|
| 6/04/2012 to 5/4/2016 | £375,000 |
Individual members may be entitled to more than this amount if lump sum protection or fixed protection has been obtained. A financial adviser can explain this further.
Pension
A Rowanmoor Pensions Family Pension Trust (Family SIPP) offers the widest choice of options available when taking benefits. Any pension taken from a member’s fund will be treated as earned income and is therefore liable to income tax.
Income drawdown
Members may draw pension income from the Family Pension Trust through capped drawdown or flexible drawdown.
Capped drawdown
The amount of pension that can be drawn down via capped drawdown can vary each year between 0% and 100% of the amount of annuity that could be provided using the Government Actuary’s Department’s annuity rate applicable for the member at the time they take benefits. The maximum level of capped drawdown must be reviewed at least every three years and annually after age 75.
Flexible drawdown
Flexible drawdown also enables income to be taken from the Family Pension Trust, provided the member meets the minimum income requirement (MIR). There are no restrictions on the level of income that the member can take, but no further pension funds can be built up, or accrued, for the member in any registered pension scheme. All contributions to all pension arrangements must cease, permanently, in the tax year before flexible drawdown commences. Any accrual or contributions made in the tax year, or subsequent tax years, after flexible drawdown occurs will be subject to the annual allowance charge.
Minimum income requirement (MIR)
The minimum income requirement is the amount of secured pension income, that a member must have for life, to draw an income via flexible drawdown. The minimum income requirement is £20,000 per annum and will be reviewed by the Government in the 2015/2016 tax year. Income payments that count towards the minimum income requirement include the basic State Pension, State Second Pension (S2P), lifetime annuities, and scheme pension if the scheme has twenty or more people receiving a pension. Purchased life annuities, short-term annuities, other state benefits and any type of income drawdown do not qualify.
Scheme pension
A Rowanmoor Pensions Family Pension Trust provides members with the opportunity to take benefits as a scheme pension.
A scheme pension is a secured income paid to the member for life. Unlike income drawdown, a scheme pension can provide a guaranteed income period of up to ten years. On death, the pension is normally paid to the member’s nominated beneficiaries for the remainder of the guarantee period.
A scheme pension allows a member to receive an income direct from the Family Pension Trust. The Family Pension Trust provides the member with a set level of pension in return for their fund. The level of pension is calculated by Rowanmoor Pensions Actuarial Department and is designed to pay out the fund over the member’s expected lifetime. The amount of scheme pension payable is normally reviewed every three years and may vary, depending on the investment performance of the scheme assets.
If a member’s life expectancy changes, for example due to ill health, the Actuary can review the payment of the scheme pension to reflect any shorter life expectancy.
Please contact us for further details if a member is considering the scheme pension option. We recommend that members seek independent financial advice before proceeding with this method of taking benefits.
Lifetime annuity
A lifetime annuity is purchased from a life assurance company. The annuity must be payable up to the member’s death, or the end of any guarantee period should the member die within this period. This type of income is secured and counts towards the minimum income requirement.
The annuity may be level or incorporate annual increases and may also allow for dependants’ pensions to be paid after death of the annuitant.
Short-term annuity
A short-term annuity is purchased from a life assurance company and is payable for a term of no more than five years. It does not count towards the minimum income requirement for flexible drawdown.
This information relates to the Rowanmoor Pensions Family Pension Trust (Family SIPP). If you have any specific questions, you can contact us, email us or send your questions via the enquiry box on the right hand side. Alternatively please visit our Family Pension Trust literature library for more information.
