The government has published the Finance Bill which will enact measures announced in last week’s Budget report and in the June 2010 Budget.
The bill includes a number of measures including: the removal of the requirement to annuitise by the age of 75; the introduction of a universal state pension of £155 per week; an increase in the income tax personal allowance by £1,000. It also includes measures to reduce fuel duty rates by 1p; and cut corporation tax rates to 26% in 2011 and 25% in 2012.
From 6 April, individuals will be able to leave their pension funds invested in a drawdown arrangement and make withdrawals throughout their retirement, subject to an annual cap.
The maximum withdrawal of income that an individual will be able to make from most drawdown funds on reaching minimum pension age will be capped at 100% of the equivalent annuity that could have been bought with the fund value. This maximum capped amount will be determined at least every three years until the end of the year in which the member reaches the age of 75, after which reviews to determine the maximum capped withdrawal will be carried out annually.
Any new pension savings by an individual after he or she has demonstrated that their secure lifetime pension income is at least £20,000 a year will be liable to the annual allowance charge on all pension input amounts.
Most of the rules preventing registered pension schemes from paying lump-sum benefits after the member has reached the age of 75 are being removed.
With effect from 6 April, inheritance tax will not typically apply to drawdown pension funds remaining under a registered pension scheme, including when the individual dies after reaching the age of 75.
Also taking effect from 6 April, inheritance tax anti-avoidance charges that apply to registered pension schemes and qualifying non-UK pension schemes where the scheme member omits to take their retirement entitlements (such as failing to buy an annuity) will be removed. These changes will also apply to superannuation funds that are occupational pension schemes.
David Gauke MP, the exchequer secretary, said: “The Finance Bill demonstrates the government’s commitment to promoting growth and fairness.
“Its measures improve the tax system for both business and citizens, and tackle tax avoidance by those who seek to gain an unfair advantage over others.
“It also acts as an example of the way in which we aim to bring in changes to the tax system in future to ensure greater predictability, stability and simplicity.”
David McCourt, senior policy adviser at the National Association of Pension Funds (NAPF), added: “The pensions tax reforms being legislated in this Finance Bill move away from the previous government’s proposals to restrict tax relief for higher-earners and introduce a much simpler and fairer approach based on a reduced annual allowance.
“We are particularly pleased the new government listened to NAPF concerns and has introduced a new tax framework that will enhance, not damage, pension saving, and has taken welcome steps to protect moderate earners.
“However, the introduction of the new tax regime will impose significant additional administrative burdens on pension schemes and employers. The government now needs to commit to a period of stability in the pensions tax rules. It also needs to start demonstrating progress against meeting its commitment to reinvigorate occupational pensions.”
“The removal of the requirement to annuitise by age 75 introduced by the bill gives extra flexibility to pension savers in how and when they can start taking their pension income.
“Such extra flexibility can be useful, but these changes will mainly benefit those with larger pensions and multiple income streams. We think most people will still end up choosing an annuity.”
Read the full Finance Bill
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