A-Day, the 6th April, 2006 was responsible for many changes in pensions legislation in this country. This one relates to the maximum amounts payable into pension schemes from that date. For defined benefit schemes it is the maximum allowable increase in accrual in a year. For defined contribution schemes, such as a personal pension, it is the maximum amount of contribution in a year. Five years figures were given:

Tax year 2006/2007            £215,000

              2007/2008            £225,000

              2008/2009            £235,000

              2009/2010            £245,000 

              2010/2011            £255,000

Tax relief is available up to £3600 or 100% of earnings if greater, subject to this annual allowance. There is no limit on the amount of contribution that can be made, the limit is on the amount which enjoys tax-relief. The annual limit is once times salary or £235,000. There is no limit in respect of the year in which benefits are taken in full.

The rules around the tax-free lump sum were also changed on A-Day…to a maximum 25% of the fund value.  

Cancer is a very emotive topic, and really shouldn’t be linked to finances, but when it comes to buying a pension annuity at retirement it is really important. Cancer comes in many shapes and forms, some very much more serious than others, and treatment also comes in many forms.

The point is that all this has an effect on the purchase price of an annuity, or whether buying an annuity is the right thing to do in certain circumstances. Cancer, like many other serious health conditions, can have the effect of greatly reducing life expectancy. This, from an annuity point of view, means that an enhanced annuity rate is probably in order, and this could be substantially more than a standard rate annuity, resulting in a much bigger retirement income.

If the cancer , or other condition, is very serious, life expectancy could be very short. In such cases an alternative to an annuity is probably in order as they do not normally pay out on early death. As always, proper advice should be taken.

This website does make a donation to Cancer Research UK for each contract entered into, to help in some small way with their important research.

The question of ‘can you get a better annuity quote direct from an annuity provider ?’ is mentioned elsewhere on this website. I am highlighting it again;

(a) because certain customers are raising the question, believing that cutting out the advice issue (the independent financial adviser (ifa)…Bank of Scotland Annuity Service on this website) will lead to a better rate because no commission is payable, and,

(b) because certain big name insurance companies are reporting growth in direct business.

First, you do not get a better deal going direct. There may be no commission, but the rate is exactly the same as going through an ifa where there is commission.

Secondly, the insurance company, whoever they are, can only comment on their own products. The ifa has the choice of the whole market, including some specialists, and is therefore well placed to get you a better deal than if you went direct.

Conclusion: use an ifa if you want a better income in retirement.

The 6th April, 2006 was an important date in the pensions industry, and it got tagged with the label ‘A-Day’. New tax regimes were brought in, and one was about statutory lifetime allowances for the maximum amount payable from approved pension schemes…and still being treated as tax-privileged. Basically this means the size of your pension fund.

Figures for five years were provided and these follow. Interestingly, pension funds over the amounts shown will have a ‘recovery charge’ of 25% on vesting. If all or part is taken as a lump sum this will be taxed at 40%. If taken as an income normal income tax rates will apply. The overall tax charge works out at 55% !    Figures:

Tax Year 2006/2007                          £1.50m

               2007/2008                          £1.60m

               2008/2009                          £1.65m

               2009/2010                          £1.75m

               2010/2011                          £1.80m

The Office for National Statistics (ONS), the body responsible for knowing everything about the pensions industry, had admitted a mistake.

Last month it provided figures showing that pensioner couples received £2115 per year from private pension schemes. This was a slight reporting error. The correct figure should have been between £9000 and £10000.

Nice to know they are on top of things.