‘A’ Day (the Appointed day) arrived on 6th April 2006 and brought with it sweeping and radical changes in relation to pension legislation. This has created a single universal regime that replaced the previous eight tax regimes and the changes affect all savers in occupational and personal pension schemes, employers and financial advisers.
Pension simplification introduced two new controls, the pension Lifetime Allowance (LA) and pension Annual Allowance (AA).
From April 2006, there is now just one set of tax rules for all types of pension, with an individual LA of £1million (2016/2017) and an individual AA of £40,000 (2016/2017). Most individuals are able to fund up to these limits with the possibility to also carrying forward unused AA from the previous 3 years. Exceeding the LA or the AA will simply trigger a tax charge.
Other changes included:
• Early retirement age available from age 55
• Full concurrency (i.e. being able to pay into any array of plans you wish), subject to the annual allowance and potential for carry forward
• Wide investment flexibility
• Up to 25% Tax Free Cash
• The ability to commute ‘small’ funds as a one off lump sum as opposed to having to draw a regular income from age 55 (subject to part of the fund being taxed)
• Flexible options at retirement when deciding to take benefits such as Flexi-access Drawdown
• No need to ‘have to’ secure benefits at age 75 via an annuity