A-Day

There are many myths surrounding A-Day but whether you believe the hype or not, it's a certainty that you will be affected. We have helped and continue to help a substantial number of our clients to maximise the benefits available. By applying common sense, logic and a detailed knowledge of the pension industry we are able to solve complex problems and achieve consistent success in helping clients to:

  • save £1,000s in tax
  • save £1,000s in costs
  • retire earlier

‘A-Day’, or ‘Appointed Day’, which fell on 6th April 2006, is the date from which the Government implemented radical changes to pension legislation within the UK. These changes have the following key components:

Lifetime allowance

Each pension scheme member will have a maximum permitted tax-exempt pension fund allow-ance known as the ‘lifetime allowance’. The Lifetime allowance is currently £1.65 million per person (2008/09) and it will rise year by year to £1.8 million by 2010/11. Any excess over the lifetime allowance when benefits are taken will be subject to a 55% tax charge if they are drawn as a lump sum, or subject to a 25% charge if they are used to provide taxable income benefits. There are transitional provisions to protect excess funds built up before A-Day.

Annual allowance

There is an annual contribution ceiling known as the ‘annual allowance’. This is currently £235,000 (2008/09) rising annually to £255,000 by 2010/11. Of this, the individual can contribute up to the greater of:

  • £3,600 or
  • 100% of earnings

without being taxed on the contribution. However, in the year benefits are taken the annual allowance restriction is removed allowing employees to contribute up to £1.6 million.

Retirement age

The concept of a ‘normal retirement age’ will disappear. Instead, when benefits are taken that date will be known as the ‘Benefit Crystallisation Event’. There will be no requirement to retire or stop working to take pension benefits. The minimum age for drawing benefits will rise from 50 to 55 between A-Day and 6 April 2010.

Tax free cash sum (known as ‘Pension Commutation Lump Sum’ from A-Day) The maximum tax-free cash from any pension arrangement will be 25% of the fund. However, cash entitlements which exceed 25% prior to A-Day will be protected and stay intact, as long as the pension fund is not transferred to another scheme after A-Day, when the protection would be lost. It will be possible to take a tax free amount up to the maximum without the need to draw a taxable income. Note: no lump sum can be taken after age 75.

Income in Retirement

Retirement income will come under 4 main categories:

  1. Lifetime Annuities. These are purchased from a life assurance company.
  2. Scheme Pensions. These are pensions paid directly from a pension fund and are the only route available for defined benefit schemes, but are an option available for all other types of pension scheme.
  3. Unsecured Income. This is an income withdrawal equivalent to a maximum of 120% of the highest level of pension the fund could provide using the FSA's comparative annuity tables as a benchmark. It is usually marginally less than the maximum limit which applies using the equivalent GAD rates.
  4. Alternatively Secured Pensions (ASPs). These are a type of income withdrawal being introduced from A-Day. ASPs will only be available for pensioners age 75 or over. They can be as much as 70% of what the fund could provide as a pension, based on FSA rate for some-one ages 74 years and 364 days.

    5. Death benefits before retirement

    The maximum lump sum death benefit simply equals the lifetime allowance, i.e. currently up to £1.65 million tax free (2008/09). Any excess lump sum will be subject to the 55% tax charge on the recipients. Survivors’ pensions can be provided as well as a lump sum - though they will be taxed.

    Investment restrictions

    The current investment restrictions will remain largely as they are at the moment. However, the restrictions on lending to a sponsoring employer will be stricter, as will loans to pension schemes.

    Please contact us if you would like to arrange a meeting with one of our advisers to discuss your circumstances.

    “By applying common sense, logic and a detailed knowledge of the pension industry we are able to solve complex problems and achieve consistent success for our clients”