Frequently Asked Questions
What are the benefits on retirement or death that can be paid?
Commencing retirement benefits
The minimum benefit age will increase from 50 to 55 by 6 April 2010. Benefits must commence by age 75 and can commence irrespective of whether or not you are still working. Benefits can commence before the minimum pension age on the grounds of incapacity.
Pension commencement lump sum
The maximum tax-free lump sum is the lower of (a) 25% of the value of your SIPP and (b) 25% of your unused lifetime allowance. Transitional protection is available for large tax-free lump sums accrued before.
Unsecured pension - income withdrawal
Up until age 75, your pension benefits may be paid directly from your pension (rather than secured by the purchase of an annuity) subject to the following:
- Minimum annual pension is zero;
- Maximum annual pension is 120% of the annuity rate supplied by the Government Actuary's Department (GAD); and
- Maximum pension is reviewed every 5 years. Annual reviews may be carried out at your request.
Secured Pension
Pension benefits must be secured before age 75 (at age 75 for ASP) by one of the following:-
- An annuity provided by an insurance company;
- Alternatively Secured Pension (ASP), an extension to income withdrawal beyond age 75. The "security" is achieved by reducing the maximum pension that can be taken to 90% of the GAD annuity rate for a 75 year old. The minimum annual pension Is 55% of the GAD annuity rate for a 75 year old. Income limits are reviewed annually.
Death Benefits
On death before commencing benefits, a lump sum will be available tax-free up to the lifetime allowance, usually payable to your nominated beneficiaries. Any amount paid as a lump sum over and above the lifetime allowance will be subject to 55% tax.
There is no test against the lifetime allowance where the death benefits are paid as dependants' pensions.
In the event of death whilst in receipt of an unsecured pension, benefits can be provided in two forms. Either the residual fund can be used to provide a taxable dependant's pension or alternatively, the full value of the fund will be available as a lump sum payable to your beneficiaries, subject to a tax charge of 35%.
Lump sums payable on death before age 75 will continue to be free from inheritance tax in most circumstances.
If pension benefits are being provided using ASP, any funds remaining on death after age 75 must be used to provide dependants' pensions. Where there are no dependants, surplus funds may be paid to a registered charity, free from inheritance tax. It may also be possible for the surplus funds to be paid to your beneficiaries as an "unauthorised payment" but this will be subject to significant tax charges, including inheritance tax.
Scheme investments
The range of permitted investments remain broadly unchanged post A-Day.