The Government Green Paper on Pensions looks set to introduce new restrictions on retirement flexibility for Pension Fund Withdrawal (Income Drawdown) as soon as April 2005.
In simple terms, the Government are looking to implement changes that will restrict the amount of tax free cash that can be taken out of your pension fund whilst leaving the balance of your pension fund invested in a tax efficient environment as well as restricting the amount any surviving spouse can take from the fund as a lump sum after the pension plan holders death.
Currently, the spouse can withdraw the majority of the fund but there may be a tax charge. Under new rules, the Government plan to restrict the amount of tax free cash that can be taken out without technically "retiring" and limit the amount of cash that at spouse could take to the amount that was originally invested (with no tax though) meaning any growth achieved on the plan will come as a windfall for the pensions company.
In addition, for over 75's spouses no lump sum would be available meaning yet more windfalls.
Our view
This is yet another "kick in the teeth" for flexibility at retirement. How can Government force people into less flexible positions and offer providers the opportunity of yet more windfalls?
Annuity rates are poor. Annuity products are unimaginative. Annuity products are restricted by legislation. Windfalls for pension companies are already aplenty.
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