Midlands Tax Specialist welcomes coalition pension changes

Doug Robshaw, Tax Partner at Midlands-based business and tax advice firm Rabjohns LLP, has today welcomed the decision by the coalition government to make personal pension plans more flexible.

 

The government has outlined its plans to scrap the long-standing compulsory deadline for people buying an annuity. Under current rules those with a private or company pension must buy an annuity once they reach the age of 75.

 

In the Budget, the government changed this age from 75 to 77, and now it has outlined plans to abolish the deadline.

 

Doug Robshaw explains, “An annuity is a policy that gives people a guaranteed pension income. You build up capital in a pension policy during your working life and then convert it into regular pension income for the rest of your life. You get tax relief on the contributions you make and the funds grow in a tax free environment so the tax breaks do make pension saving attractive”.

 

A quarter of this pension pot can be taken as a tax-free lump sum, but the rest must eventually be converted into an annuity at 77.

 

Robshaw commented further “The current deadline leaves many investors having to buy an annuity when the rates are poor or the markets are under performing so pensioners don’t end up with the income they expect or need in retirement. Add to this the fact that if someone dies shortly after buying their annuity, the bulk of their pension pot goes to the insurance company which provided the annuity then there is a massive financial impact on the family.”

 

In its coalition document, the government said that it would end the rules requiring compulsory annuity purchase at 75.

 

Robshaw added “The details now released for what’s to come in April 2011 should give pensioners more flexibility in what they want to do with their pension savings and enable them to pass more funds to the family on death. “

 

There will be a consultation period of 8 weeks at the end of which the final proposals will be announced.

 

For more information please contact Doug on 01905 732100 or e-mail him at dr@rabjohns.co.uk.

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