As announced on 9 December 2010, the requirement to buy an annuity by the age of 75 will be removed. This age limit was temporarily increased to 77 in the June Budget whilst the new proposals were devised. Individuals will have more flexibility in how they choose to draw pension benefits. They may defer the decision to draw benefits indefinitely, although it may still be sensible to access the tax-free cash at age 75.
The new regime returns to the definition of 'income drawdown' and eliminates some of the complexities that arise due to different methods of drawing income ('unsecured pension' and 'alternatively secured pension'). The maximum income drawdown will be reduced from 120% to 100% of an 'equivalent pension' (broadly the single life level annuity that could have been bought with the fund). This limit will not apply to individuals who have secured other lifetime pension income of at least £20,000 per annum. Once this level of income is met, it appears that the individual can draw the full amount within the fund.
Who will be affected?
Individuals in UK registered pension schemes who have not yet purchased an annuity.
The changes will take effect on 6 April 2011.
The changes will be welcomed by individuals approaching age 75 who do not wish to purchase an annuity. However, the changes in the maximum drawdown limit will reduce the amount of tax-free pension income that some individuals can access.