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Pensions

Retirement Income

You do not need to retire or even stop working to draw benefits from your SIPP fund, as long as you have met the minimum retirement age which is age 50 (rising to age 55 in 2010/2011) - subject to limited exceptions for certain occupations with reduced retirement ages.

Normally you will be entitled to receive up to 25% of your total pension fund(s) (or the value of the benefits being taken) as a tax free lump sum (also referred to as pension commencement lump sum), subject to an overall limit of 25% of the lifetime allowance.  In some cases individuals may have applied for enhanced or primary protection to protect their tax free cash entitlement prior to 6 April 2006, which may be higher than these amounts.

The remainder of your fund after taking your tax free cash must be used to provide a pension which will be subject to tax.  This must either be a:-

• Lifetime annuity: where an income is payable by an insurance company for your lifetime and can, if you choose, be a level or increasing amount and payable to a spouse or partner on your death.
• Short-term annuity: where you can use all or part of your pension fund to buy an annuity lasting up to five years (or to age 75 if sooner).
• Capital protected annuity: these types of annuity will pay out a lower income than a lifetime annuity, however, on death before age 75 your dependants will receive a lump sum equal to the cost of your annuity, minus the income that you’ve already been paid.

or

2. Unsecured pension;

This is also referred to as income withdrawal and allows the holder to take an income each year from £0 up to 120% of the rates published by the Government Actuary’s Department.  The maximum income will be established at outset and then reviewed at five year intervals.

At age 75 your pension income must be secured either by purchasing an annuity or via an:

3. Alternatively secured pension

Alternatively secured pension operates on a similar basis to income withdrawal (unsecured pension) where the holder can take an income between a minimum and maximum level.  The minimum income is 55% and the maximum is limited to 70% of the rates published by the Government Actuary’s Department.  These income levels will be reviewed yearly.

Significant tax charges can apply on death under an alternatively secured pension and it is very important that anyone considering this seeks independent financial advice.

The legislation and taxation rules governing income options may change from time to time and we strongly recommend that you seek professional advice before pursuing any course of action.

Lifetime allowance

If you require advice then please contact the Rathbone Pension & Advisory Services Limited on 020 7399 0000.