Pension rule changes on A-day - by independent financial adviser John Bramwell

Pension Rule Changes on A-Day

Pension rules changed on April 5th 2006 (A-Day). The changes were the biggest for over 30 years, and included:

A single set of simplified rules.
A lifetime limit for pension funds, above which tax penalties apply.
Maximum contribution in any year is now 100% of earnings or the annual allowance (£225,000 for 2007/08).
The range of investments allowed inside a pension increased.
Mortgage loans available inside a pension are now limited to 50% of the fund value after A-Day.
Tax-free cash available at retirement is now 25%.
Introduction of Alternatively Secured Pensions to allow an income to be taken from a pension fund after the age of 75.

Why did the rules change?

The state pension will be less (in real terms) in future due to the increasing proportion of retired people and increased life expectancy. The new rules are intended to encourage the disillusioned and the apathetic, as well as those who are already saving, to invest more in their retirement provision.

Pensions are a very tax-efficient way of saving for retirement but they can be inflexible. The new rules will make them more flexible and appealing.

Review your pension now!

Some existing schemes have benefits that are greater now than those the new rules will allow, eg. tax-free cash in excess of 25%. In some circumstances the benefits of existing schemes can be protected, if required, but this should be done as soon as possible.