Scheme benefits

Under the new regime, up to 25% of the pension fund, below the lifetime allowance, can be paid as a tax-free lump sum. For many people, particularly those in schemes where the lump sum is currently capped, this represents a significant increase.

The age 75 rule

Subject to the lump sum, the balance of the fund must be secured by age 75 by taking a pension eg an annuity guaranteed by an insurance company or a pension from an employer. There will also be the facility to retain some control of the fund by taking 'alternatively secured income' (ASI).

Under ASI:

• the annual pension income must be between minimum (expected to be £1) and maximum limits
• the maximum will be 70% of the annual amount which would be payable if the fund were used to buy a flat-rate single-life annuity on the open market for a person aged 75.

At present, it is not clear whether this option will be attractive to many people.

If death occurs before pension benefits are taken, the fund can be paid to dependants as a lump sum subject to the lifetime allowance charge, if relevant, or as pension income subject to income tax.

No capital may be returned if death occurs on or after age 75. This is a feature of our current regime. The firm view of the government is that tax relief for pension contributions and the fund is given to enable a pension to be provided in retirement. It is not given in order to provide a tax efficient mechanism of passing wealth to the next generation.