Pension simplification

What is pension simplification?

The introduction of pension simplification on 6 April 2006 (A-day) brought about the biggest change in pension legislation in a lifetime with the following aims:

• to reduce the complexity of pensions
• to offer simpler and more flexible retirement arrangements
• to encourage saving for the future

Pension rules

The most significant of these are as follows:

1. Lifetime allowance

We all now have a pensions lifetime allowance (LTA) which is effectively a cap on the amount we can accumulate in pension funds.  This was £1.5m for the fiscal year ending 5 April 2007 and will increase annually to £1.8m by 2010/11 at which time it will be reviewed.  View the increase in lifetime allowance.

If your pension funds grow to more than the LTA when you take your benefits the excess will be subject to tax of 55%.

Transitional protection is available to those whose funds exceed this amount if certain conditions are met and an election is made by 5 April 2009.

2. Annual allowance

As well as a lifetime allowance on accumulated funds an annual allowance on contributions applies.  This enables individuals to contribute up to the lower of 100% of their earned income in any tax year and a prescribed annual allowance.  This was £215,000 in 2006/07 and will rise to £255,000 by 2010/11.  View the annual allowance figures.

3. 25% tax free lump sum

When benefits are drawn, up to 25% of the fund can be available as a tax free lump sum.  Previously not all pensions were able to provide this.

4. Retirement age increases from 50 to 55 on 6 April 2010

5. Changes to drawing your pension benefits

Please refer to our options at retirement page.

6. Full concurrency

Ability to contribute to personal and occupational schemes at the same time.

How we can help with pension planning

Planning for your retirement and choosing the most suitable pension option is difficult.

Using our knowledge and expertise we can help make sure you choose the right one.

Contact us

To find out more about how we can help you with your pension planning contact one of our advisers in your preferred office. 

Annual and lifetime allowance figures