The measure

The Government is proposing that the effective requirement for members of registered pension schemes to purchase an annuity by age 75 will cease with effect from 6 April 2011.

As an interim measure, members of registered schemes who reach age 75 on or after 22 June 2010 will not have to buy an annuity or otherwise secure a pension income until aged 77. However, they will still have to take their lump sum and become entitled to income drawdown immediately before their 75th birthday.

Until the changes come into effect in 2011/12, a tax charge of 35% will be imposed on lump sum death benefits paid by a registered scheme if an individual dies with income drawdown on or after 22 June 2010 aged 75 or over. This will replace the charges, including inheritance tax, which previously could amount to 82% in total.

For individuals with money purchase arrangements that become aged 75 on or after 22 June 2010, and have not yet purchased an annuity, the strict minimum and maximum limits on income withdrawals will now apply from their 77th birthday and not their 75th birthday.

It should be noted that the Government has stated that a consultation on the detail of these changes will be launched shortly.

Who will be affected?

Members of registered schemes and their dependants, especially those members nearing aged 75. Also affected will be registered schemes and their administrators, annuity providers and personal representatives of deceased scheme members.

When?

The increase in age by which the member of the registered scheme must purchase an annuity takes effect on or after 22 June 2010. This will also apply for IHT purposes to members who die on or after that date.