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UK awaits new annuitisation and drawdown rules

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  • UK awaits new annuitisation and drawdown rules

UK - The UK pensions industry awaits with bated breath the publication this week of a shake-up of the annuitisation and drawdown rules. Any changes will have the potential to affect all investors holding a UK money purchase pension: approximately 12 million individuals, with many more in the years to come. It is expected that those with large pension funds will be allowed to take ‘flexible drawdown', on condition they can secure a minimum income requirement of £10,000-£15,000 per annum to ensure they are lifted out of any future dependence on state benefits. When calculating this minimum income requirement, acceptable sources of income are likely to be confined to state pensions, final salary pensions and annuities. Those with smaller pension funds will be able to take ‘capped drawdown' which would be similar to existing income drawdown arrangements. Another big change is expected to be the tax rate levied on lump sum payments following death in retirement. The Treasury has proposed a new flat rate tax of 55% on death, instead of the current  82% rate for those aged over 75 and the 35% rate for those under 75. These changes were due to come in to effect from April 2011 under the Treasury's original proposals, but some insurance companies have been lobbying for a delay, arguing that they would be unable to update their systems in time.

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