Changes to pension rules announced in the Draft Finance Bill 2011 last week are a mixed blessing, says Nina Montagu-Smith in The Sunday Times. If you’re wealthy and can afford to leave most of your pension invested after retirement, any unused pension funds will be taxed at 55% rather than 82%, provided you’re over 75 when you die. But die before 75 and your heirs will be taxed at 55% rather than the current 35%.
At the moment, at least three-quarters of defined contribution or money-purchase pension funds, including all personal pensions, must be invested in an annuity by the age of 77, says Ian Cowie in The Daily Telegraph. Many people resent this – although it “guarantees their savings will not run out before they do”, it also means “irrevocably passing capital to an insurance company, rather than to their heirs”.
As of next April, pensioners who have built up enough capital to produce a minimum secure income of more than £20,000 a year will be free to take whatever they want from their fund. When they die the remaining funds will be taxed at 55%.