your pension explained

Your pension explained

In the 1995 Finance Act, the government made the concession of allowing personal pension plan members to delay annuity purchase until they reach age 75.

Prior to the 1995 Finance Act, retirees with ‘money purchase’ policies were restricted to buying a compulsory purchase annuity. At the time, low interest rates prevailed, and pension plan members had no alternative but to lock themselves into an annuity at poor rates of income. (Note that annuity rates are seen as bearing a relationship to interest rates, so when interest rates are low, then annuities give poor returns).

The 1995 Finance Act allowed pension plan members to ‘drawdown’ an income from their pension fund, which remained invested. This drawdown was between 35% and 100% of the amount that would be provided, had the annuity purchase gone ahead. Insurance companies spawned a host of new product ranges, which provided much more choice, but this increased the complexity of the decision making process for retirees.

This new opportunity was welcomed, as pension plan members were now able to keep their pension fund invested, enabling their pension fund the opportunity to continue to grow. Additionally, the pension plan member would be able to pick a more suitable time to purchase their annuity.

In recent times (2000 – 2007), equity markets have been in recovery and interest rates after dropping very low, appear to be rising. The most salient point for those looking at retirement options is the fact that people are living increasingly longer.

Pension Simplification
The Finance Act of 2004 introduced a completely new tax regime which went live on the 06/04/2006 (known as A-day) and which covered all approved pension arrangements introducing important changes to retirement options - more