Lifetime Allowance rules are linked to pension access
If you live in the UK then the way in which you access your pension, and your age, will dictate the best planning available to you. Unfortunately, older style of schemes may not provide the flexibility which is listed on this page as there are a range of options available including protection, use of overseas pensions and flexibility of access that will all assist with preventing or reducing the amount taxed on accessing pension funds.
If you live outside the UK, then you may be under the impression that simply transferring to a QROPS will be the solution. Actually, not only is a transfer to a QROPS subject to Lifetime Allowance rules assessment and will use up a percentage of lifetime allowance, but if you move to live and retire in countries such as France or Spain (and others) then you will be expected to pay tax on any lump sum from a pension even if it is QROPS. So, by avoiding one possible tax, you become subject to another.
If you live outside the UK you should only discuss this complicated subject with an authorised and regulated expert from the UK, and ideally one with international experience. You should be extremely cautious about using advisers that require “signing off” by another firm, especially where those firms are operating or linked to Switzerland, Spain, Isle of Man (IOM) and Gibraltar.
The starting point is new rules available in the UK. From 6 April 2015, there were changes in the way you can take money from your money purchase UK pension; this will be subject to you having reached the minimum pension age (normally 55). The introduction of flexi-access drawdown, a new form of income drawdown, and a new lump sum payment called an uncrystallised funds pension lump sum has changed the way you can take benefits and provided more options for you. You will still have the option to purchase a lifetime annuity from your fund.
What is flexi-access drawdown?
With the introduction of flexi-access drawdown the limits on how much can be taken out of a pension fund will be lifted. Aisa can offer flexi-access drawdown as one option for you.
In most circumstances you will be able to take 25% of your fund as a tax-free pension commencement lump sum.
You will be able to take as much or as little as you want from your remaining fund as pension income, but you will have to pay income tax at your marginal rate on these payments.
Even overseas you will be able to use your UK personal allowance when paying UK tax. You will be subject to taxation in the country you are resident in based on the Double Tax Treaty between the UK and your country of residence.
Taking a pension income via flexi-access drawdown means that you will be subject to new money purchase annual allowance rules (explained later).
If you are going into drawdown for the first time, flexi-access drawdown will be the only drawdown option, although you can make new contributions and transfer any other pension you may have into your flexi-access drawdown pension.
What annuity rules are changing?
A lifetime annuity can go down as well as up.
The annuitant can name someone other than a spouse as a beneficiary (if provider allows).
A lifetime annuity may continue after the member’s death for any period that is set out in the annuity contract.
What is UFPLS?
Uncrystallised funds pension lump sum (UFPLS), is a way of taking money from your pension fund which is not yet in drawdown.
To qualify to take a UFPLS payment you must meet the following criteria:
you must have more lifetime allowance remaining than the amount of the lump sum if you are under age 75 when it is paid;
if you are 75 or over when the lump sum is paid, you must have at least some lifetime allowance left;
you cannot have enhanced or primary protection with a protected lump sum or a lifetime allowance enhancement where the available proportion of your lump sum allowance is less than 25%, and
you must have reached minimum pension age or meet the ill-health conditions.
UFPLS points to consider:
25% of each UFPLS payment will be free of tax (the tax free element) with the remaining 75% of the payment being subject to income tax at marginal rate;
UFPLS payments will be tested against your lifetime allowance, and
taking a UFPLS payment means that you will be subject to new money purchase annual allowance rules.
What are my options if I’m in capped drawdown?
You can make new contributions and transfer other pensions you have into your UK pension which is probably a SIPP.
You can retain your fund as a capped drawdown fund and continue to draw income up to the annual maximum amount.
If you have additional funds within the same SIPP from which you have not yet taken benefits, it will be possible to take these funds into capped drawdown after 6 April 2015 within the same plan and remain in capped drawdown (this is called additional designation).
What are my options if I’m currently in flexible drawdown?
If you were in flexible drawdown prior to 6 April 2015, then your drawdown fund will automatically be converted to flexi-access drawdown by most providers.
You will be able to make further pension contributions of up to £10,000 per annum without incurring an annual allowance charge.
What will the charges be for the new options?
We have set out all our charges in a transparent way.
With the new explicit charging regime in the UK then we often find with clients that are in older implicit pension products that it is worth them considering other options moving forwards.
Each client will have an individual breakdown of existing product charges and new explicit charges if relevant.
All our charges are fee based. Hidden commissions have been banned and are not used by reputable advisers, thus eliminating the concept of “free advice”, as it was paid for by those commissions which seriously disadvantage you, the client.
Sustainability of income will be a key objective for many as income may need to continue for 25 years or more.