Pensions Simplification - Taking benefits before the age of 75

Maximum income in any year is 120% of the annual income which could be paid if the fund were used to buy a level annuity on the open market - based on the notional annuity rates published by the Government Actuaries Department (GAD).

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The maximum pension must be reviewed every 5 years. When a member dies before age 75, any remaining fund may be repaid as a capital sum subject to tax at 35%.

Securing benefits from age 75

By age 75, income must be secured for life - but the compulsion to use the fund to purchase an annuity disappears after 5 April 2006. Pension income may be delivered after age 75 instead through an Alternatively Secured pension (ASP).

ASP is a form of pension fund withdrawal that is more restrictive than that which operates before age 75. ASP may not start before age 75.

The maximum income that may be drawn from the fund through ASP is 90% of that which could be generated by applying to the fund an annuity rate for the member's age and sex at age 75 (the relevant annuity) - based on the notional annuity rates published by the Government Actuaries Department (GAD). The minimum level of ASP that must be drawn is 55% of the relevant annuity.

The maximum income and minimum that may be drawn will be reviewed annually using this basis. At each review the rate for a 75 year old will always be used irrespective of the age of the individual.

On death any remaining fund underlying ASP must first be used to provide unlimited dependants' pensions.

Any remaining fund reverts to the scheme, where it may be re-allocated to provide pension benefits for other members or possibly paid to a registered charity.

However this may lead to a combination of tax charges that can total 82% of the "leftover fund".

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