From today (22 June), the government has pushed back the age at which pension scheme members must purchase an annuity from 75 to 77 as a temporary measure until it develops new permanent rules.
Legislation to implement changes to the age at which pensions scheme members must buy an annuity or otherwise secure a retirement income will be introduced in the Finance Bill 2010.
This change will also apply for the purposes of the inheritance tax charges that specifically apply to pension scheme members aged 75 or over.
For scheme members with money purchase arrangements who have not yet bought an annuity by age 75, the income withdrawals they may make become subject to strict minimum and maximum limits from age 75. Also,
if such a member dies after reaching age 75 and any of the fund is not used to pay either pensions to dependants or a charitable donation, it is subject to tax charges up to 70%.
For scheme members with money purchase arrangements who have not yet bought an annuity and reach age 75 on or after 22 June 2010:
• the strict minimum and maximum limits on income withdrawals will apply from their 77th instead of their 75th birthday;
• immediately before their 75th birthday they will become entitled to income withdrawal and a tax-free pension commencement lump sum in respect of those funds not previously made available for income withdrawal; and
• in the interim period before the main changes have effect in 2011-12, there will be tax charges of 35% on lump-sum death benefits paid by the scheme if they die on or after 22 June 2010 and aged 75 or
over. The specific IHT death charges on pension scheme members, who are in drawdown and are aged 75 or over when they die, will not apply in these circumstances. Previously there could have been tax charges up to 82% of the value of the drawdown fund.
These interim changes will enable those reaching age 75 on or after 22 June 2010 to defer their decision on what to do with their pension savings until after the new rules are finalised next year.
Read more on the government’s plans to scrap compulsory annuitisation