As expected, the Government has announced that it will shortly no longer be necessary for those with sufficient funds in their personal pension plans and other private pensions to purchase an annuity, that is, a guaranteed income for life. 

Whilst, on the surface this may seem a minor change, possibly only affecting a few people, in practice this has, at a stroke, changed the whole nature of pension planning in the UK. 

We very much welcome these changes and over the months ahead, as we discuss their impact on individual client situations, we believe that their enormity in terms of our whole thinking about pensions will gradually become clear.

In a Nutshell

With effect from 6 April 2011 it will no longer be necessary for those with sufficient funds in their private pension arrangements to purchase an annuity at any age. Instead those who prefer to leave their pension fund invested can continue to do so. 

If their fund is large enough they can draw out amounts as and when required for the rest of their lives and leave the balance of the pension fund (less a tax charge) to their dependents. 

Alternatively they can simply leave the whole fund to their dependents with no tax charge if death occurs before age 75 and a 55% tax charge if death occurs after age 75. Very importantly such funds are outside of their estate for inheritance tax purposes.

This is good news for many people who consider annuities to be poor value for money, or perhaps prefer to wait for a period of time before making a decision to buy a guaranteed income with their funds.

A New Guide

The changes are contained in a 62 page document Removing the Effective Requirement to Annuitise by Age 75 published by H M Revenue & Customs and a 28 page document A summary of the consultation responses and the Government’s response published by H M Treasury.

We have produced a new 4 page Guide: Changes to Private Pensions which provides an overview of the changes and which we would encourage you to read. You can obtain a copy of the Guide in pdf format via www.arch-fp.co.uk/changes_to_private_pensions.php.

Christmas Greetings

May we wish you and your families a Very Happy Christmas and may we all look forward to a Peaceful and Prosperous New Year surrounded by those we love.

If you would like to review your financial planning in 2011 please ask your usual Arch adviser, telephone 01483 204600 or email enquiries@arch-fp.co.uk.