Pension benefits from a defined contribution pension scheme (from 6 April 2015)

By Tolley
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The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Pension benefits from a defined contribution pension scheme (from 6 April 2015)
  • Introduction
  • Ways in which benefits can be taken from defined contribution pensions
  • Flexible access
  • Flexi-access drawdown
  • UFPLS
  • Comparing flexi-access drawdown with UFPLS
  • Unsecured income through a short-term annuity contract
  • Guidance and advice

Introduction

The structure of tax law in relation to registered pension schemes defines certain payments as ‘authorised’ member payments which generally attract no tax charge, and ‘unauthorised’ member payments which are subject to tax.

There are limits to authorised member payments and certain conditions that must be met in respect of some of them.

Since 6 April 2015, pensions ‘freedom’ means that pension funds from defined contribution (also known as money purchase) arrangements are much more accessible than they previously were but minimum age or other access restrictions (such as being in serious ill health if seeking to access funds before the minimum age) still apply.

For the rules up to 5 April 2015, see the Benefits available from defined contribution pension schemes up to 5 April 2015 guidance note.

Defined benefit arrangements remain subject to tighter restrictions. In some circumstances, members may be able to transfer from a defined benefit scheme to a money purchase arrangement if they wish to access their funds under pensions freedom. This is, however, a strictly regulated area of advice. As with all pensions matters, great care should be taken not to stray into it if you are neither suitably qualified nor authorised. See the Regulated investment advice guidance note.

Readers are also directed to the Pensions glossary of terms guidance note, which explains some of the common terms in use.

Ways in which benefits can be taken from defined contribution pensions

Members of an occupational defined contribution scheme may take pension benefits in the form of a scheme pension, a lifetime annuity or income drawdown.

Scheme pension

The pension is provided from the registered pension scheme or from an insurance company selected by the scheme administrator. A scheme pension may be guaranteed for a certain term not exceeding 10 years. So if the

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