The Government review of pensions legislation will now cut taxation on assets passed down to your children. This will offer substantially improved pension planning options for the more wealthy retiree.
Pensioners will now be able to pass on money from their private pension fund subject to a tax of 55%, which is termed a “recovery charge” under the new proposals. Furthermore, as these funds pass down from pension plans and private pensions, they will now be free of Inheritance Tax (IHT).
These new pensions planning rules will take effect from April 2011, and will be particularly beneficial to those who have built up more substantial amounts in their pension plans.
They will replace the current rules on pensions planning, which tax such assets at 82%.
This tax consists of a 70% “unauthorised payment charge” and a 12% Inheritance Tax charge.
The changes follow on the recent announcement that abolished the requirement to purchase a pensions annuity with your pension savings by age 75.
The new pension planning rules may encourage wealthier savers to retain ownership of their pension savings, by leaving them invested in the stocks markets in an “income drawdown” arrangement. This will enable those with large pension pots to have full access to their money, and to draw down as much or as little as they need each year.
The options under a drawdown arrangement are not totally flexible, however. The Government proposes to influence pension planning by limiting the amount it is possible to withdraw in a drawdown arrangement. This is designed to ensure that an individual’s pension planning will provide for them for a reasonable retirement, taking into account projected longevity and mortality levels. It will ensure they do not risk depleting their capital to the point where they become reliant on the state.
