Planning for your retirement should be an on-going process throughout your working life. Regular reviews of any arrangement are important to make sure that your planning remains on track to provide for your retirement, especially if your circumstances change whether this is personal or any changes in your employment.

It is possible that you may have benefits with a previous employer, or you may be contributing to an arrangement that was set up some time ago, and though it may have been suitable at that time may no longer be the most appropriate way to save.

Pensions have changed considerably in recent years with the introduction of Stakeholder Pensions in April 2001 and with Pensions Simplification in April 2006. The introduction of Stakeholder pensions led to the removal of initial, or "up front" charges, for many arrangements and the imposing of a maximum annual management charge. Any funds built up within a Stakeholder pension can be moved to another pension provider, at any time and without the imposing of any "transfer penalties" which in most cases would still apply to funds within older schemes. At the same time new personal pensions were introduced with charges similar to stakeholder.

Individual pension planning was introduced in the 1950's, with early plans identified as Retirement Annuity Contracts (RAC's) and latter contacts referred to as Personal pension Plans and a great deal was made of their portability. In the event that you changed employer you were able to take your fund with you, however you were unable to change the company you were saving with, without a potential penalty. Stakeholder introduced complete portability.

New changes know as Pensions Simplification took effect from April 6th 2006 and this has had the effect of simplifying the existing 8 tax regimes into one set of rules governing contributions and the way in which benefits can be taken. These changes affect anybody that has any form of pension plan saving for retirement, and some of the new rules are summarised briefly below.

• Lifetime Allowance - Each person will have a maximum permitted tax-exempt fund. Initially this will be £1.5million rising to £1.8million in 2010/11. If you total pension fund is above this level when you take the benefits there will be a tax charge.
• Annual Allowance – This replaces the existing limits for all types of schemes and it is now possible for an individual to pay 100% of earnings and receive tax relief, or £3,600 gross for those without any earnings. It is also possible for members of occupational pension schemes to top up benefits into their own arrangement again up to this level.
• Tax Free Cash – It will be possible to take up to 25% of the fund at retirement as a lump sum, irrespective of the scheme. The calculations on a final salary scheme are slightly more complicated, and will depend on the scheme. Some people may already have entitlement to a lump sum greater than 25% from some occupational schemes.
• Retirement Age - The concept of a normal retirement age has disappeared, along with the constraints on drawing occupational pension benefits while still employed by the scheme sponsor (employer). The minimum age for drawing benefits will increase from 50 to 55 years with effect from 6/4/2011.
• Death Benefits before Retirement - The maximum lump sum death benefit ill simply be equal to the lifetime allowance, i.e. initially £1.5million. Any excess lump sum will be subject to a 55% tax charge on the recipients. Survivors' pensions can be provided as well as a lump sum though these will be taxable.
• Income in Retirement - Retirement income will come under four main categories: lifetime annuities, scheme pensions, unsecured pensions and alternatively secured pensions that will only be available from age 75.
• Transitional Protection - For those with larger pension funds that could potentially be affected by the Lifetime Allowance and a tax charge there are two types of transitional protection which can be applied for, but there is a time limit on applying for protection and this could prevent any further contributions being made.

Despite the name of Pensions Simplification, the implications, new limits and changes for some individuals are far from simple and advice is essential to ensure that you benefit from the flexibility that it can offer.

At Harris and Associates Financial Consultants Limited we have the expertise to review existing arrangements, and help you decide on an appropriate course of action.

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