When are pension benefits available?
Pension benefits are available either at retirement or in the event of death before and after retirement. Pension benefits cannot normally be paid before the age of 55. Under our Self-Administered Scheme you can decide how much you wish to “crystallise” or “designate” to provide benefits.
What is the lifetime allowance?
For the purposes of this answer it is assumed that your total pension funds are valued at or below the lifetime allowance which is £1.5 million from 6 April 2012. Different calculations may apply if you have Enhanced Protection, Primary Protection (applicable at 6 April 2006) or Fixed Protection (applicable at 6 April 2012) or “Protected” tax free cash entitlement.
How much can you take as a Pension Commencement Lump Sum?
You would normally be able to take 25% of the amount crystallised as a Pension Commencement Lump Sum. The remaining fund would be used to purchase an annuity or provide a drawdown fund within the scheme. It is not a requirement that you buy an annuity by age 75. You have a choice as to whether you believe drawdown or annuity purchase is best suited for you. You can have a combination of both options.
In the event of death before age 75 or retirement the fund is available as a lump sum – normally free of tax – payable at the trustees’ discretion.
If benefits have been crystallised then the fund can be used to provide a pension to a dependant. Alternatively it can be paid as a lump sum subject to a 55% tax charge.
What about Charities?
If you are or your dependant is over age 75 and there is no other dependant then you or your dependant can select a Charity Lump Sum Death Benefit. Funds used for this are not subject to the 55% tax charge. This can form a useful financial planning opportunity if you are considering, or have included, a charitable donation in your will.
- All charities registered with the Commission of England & Wales are listed on a Register – this Register can be searched on-line at www.charity-commission.gov.uk.
- The Scottish counterpart is the Office of the Scottish Charity Regulator (www.oscr.org.uk).
- The Northern Irish counterpart is, from 1 May 2010, the Charity Commission Northern Ireland (www.dsdni.gov.uk/ccni).
If the charity does not use the payment for charitable purposes the payment will not have been a charity lump sum death benefit. It will be treated as an unauthorised member payment
As you can see there is never one answer to the question: what pensions benefits can be provided? We can provide you with your options and advise you accordingly. Simply contact us.