Details on Income drawdown plans

How does the lifetime allowance affect my annuity?

There’s also a lifetime allowance, or limit, on the total cost of registered allowance funds held by an individual that can gain advantage from tax allowances. The allowance for 2011/12 is £1 .8m, frozen at the same level as 2010/1 1 and is what the state claimed on 14 October 2010 would reduce to £1 .5m from 6 April 2012.

The lifetime allowance will have been enhanced (protected) where a registered scheme member elected for transitory protection in respect of their pre-A-Day benefits, or where an individual benefits from a pre-A-Day annuity credit on divorce in respect of an ex-spouse’s allowance benefits that came into payment on, or after, 6 April 2006. The boosted allowances were introduced to guard and protect people who had already built up an annuity fund in excess of, or likely to grow to surpass, the lifetime allowance.

The following factors are will be used to be certain whether the lifetime allowance has been exceeded.

An element of 20:1 is used to convert each 1 of benefits from a defined-benefit scheme to a national capital sum. This factor will apply regargless of income drawdown plans of the age and sex of the member and their retirement date. For example, if anybody is to retire in 2011/12 on a defined-benefit (final income) pension of £30,000 pa plus and a one-off payment sum of £67,500, this could be classed as a benefit or advantage of £667,500 when measured against the lifetime allowance (£30,000 x 20 plus and £67,500).

An element of 25:1 is used to convert each 1 of benefits already in payment before the date 6 April 2006 to a notional capital sum. This higher factor is founded on the presumption that a tax-free cash sum would have been taken. As an example, if someone had taken benefits in 2005/06 and was receiving £20,000 pa on 6 April 2006, this would be classed as a advantage of £500,000 when compared against the lifetime allowance. This particularly relevant to income drawdown plans , where an individual could have crystallised their annuity, but not basically be taking any revenue.

Where an affiliate is in invoice of pension fund withdrawal benefits that started before 6 April 2006, it is assumed that the revenue being withdrawn is the maximum available for anybody of that age and sex when withdrawals started, without reference to the exact revenue taken.

Early Pension and Early Retirement are key issues looked at by My UK Pension Plan, an online service which connects individuals with Financial Advisers

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