Benefits available from defined contribution pension schemes up to 5 April 2015
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.
However, 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.
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.
This guidance note sets out some background information in this area. Readers are also directed to the Pensions glossary of terms guidance note, which explains some of the common terms in use.
The primary purpose of a pension arrangement is to provide financial security in retirement. Up until 5 April 2015, the financial return from a pension in most cases had to be paid out in the form of a pension commencement lump sum and a regular income. The regular income could be provided in different ways, depending on the type and value of the pension, but for money purchase arrangements it often came in the form of an annuity payable for the rest of the member’s life.
In recognition of the fact that pension funds are built up largely tax free, the income