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On 6th April 2006 (known as A-Day) the
Government simplified the rules for
all types of Pension plans. Pensions
are more flexible than ever before
with regard to contribution limits and
how you take your benefits.
For the vast majority of Teachers this
is great news and you should take full
advantage of the new rules.
There are some new limitations which
have been
imposed, however, which may have an
impact on your pension.
The main changes can be summarised as
follows:
Currently, retirement
benefits can be taken from age 50. By 2010 this minimum age will have increased
to age 55.
Prior to A-Day, there
was a
contribution limit of 15% of salary for those in Occupational Pension
schemes. Under the new rules, however, you can contribute the equivalent of 100% of your
annual earnings* and this still qualifies for full tax relief!
People with very low or no income can still pay up to £3,600 into a personal or stakeholder pension
which will also qualify for tax relief.
There is a new 'Lifetime Limit' on pension funds of £1.5 million in tax
year 2006/07. This limit will increase in future years. While this would
be a nice problem to have, in reality it will
not affect most Teachers!!
*subject to an overall
limit of £215,000 in tax year 2006/07
Under the new
rules, you could take up to 25% of your total pension fund at retirement as a tax-free lump sum.
The
Superannuation scheme is currently reviewing the
existing structure for payment of tax free lump sum, however, this
rule also applies to top-up
Additional Voluntary Contributions (AVCs) and
Free Standing Additional Voluntary Contributions (FSAVCs), which didn't previously allow tax-free cash to be taken.
The Superannuation
scheme is currently reviewing the existing structure for
payment of pension income.
If you have any
other forms of Pension e.g.; AVCs, FSAVCs, Personal Pensions or
Stakeholder Pensions, you now have more flexibility as to how
and when you take your income. You could even withdraw the 25%
Tax Free Lump Sum from your non-superannuation pension and leave the rest invested
without the need to purchase an annuity.
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