HMRC rules and regulations governing pensions in the UK fall into three main categories which can be further subdivided. Current pension rules therefore cover the following areas;

Retirement age

Pension savings retirement age. Access to pension only available after age 55

Pension rules

The current minimum age is therefore 55 and is due to increase to 57 from year 2028

Instances of this include when the pension holder suffers from a terminal illness. In such circumstances, you should contact HMRC to receive authorisation to access your pension early and without penalty. Failure to do so may be construed as pension liberation resulting in an unauthorised payment charge

Tax rules

Pension: How to calculate your personal income tax rate. Annual income less pension contribution equals annual taxable income (subject to conditions available via Income tax rate: £0 to personal allowance (£10,600 standard rate : available via HMRC) = 0%, personal allowance to £42,385 = 20%, £42,385 to £150,000 = 40%, £150,001+ = 45%.

Pension rules

These maximums are based on your gross pension contribution after tax has been rebated into your pension

This caveat has been included to prevent anyone from abusing the rules by contributing their salary into a pension plan and immediately withdrawing it purely to benefit from the tax breaks afforded to pension schemes

This is applicable whether or not you are liable for tax due to your personal allowance. Therefore, for every £80 you contribute into a pension scheme the UK Government will add £20

Your pension pot is valued against the LTA when either you reach 75, decide to access your pension by withdrawing any funds, or if you move your pension overseas into a QROPS or equivalent. These are collectively known as benefit crystallisation events. Tax is applied to any funds in excess of the LTA at a rate of either 55% on lump sums or an additional 25% on any regular payments i.e. an annuity
The current LTA rate is £1.25 million. This is set to reduce to £1 million from the 6th of April 2016

All defined contribution pensions will allow this option via a permissive statutory override designed to prevent burdening pension schemes with high legal & administrative costs associated with amending their rules. If a pension scheme does not offer this option of full flexibility then you have the right to transfer your pension without being blocked from doing so

The timing of access to these remaining funds is entirely down to you and does not have to be on a regular basis. These further withdrawals are taxable at your top marginal rate

One-off pension withdrawals can only apply to funds that have not already been taken as part of flexi access drawdown. The taxable part of the pension withdrawal is subject to tax at your  top marginal rate

Since pension structures are very tax efficient and that you can only withdraw up to 25% tax free it is important to always withdraw the maximum 25% on the part of the pension you have to take thereby leaving the remainder. For a simple example, a person with £1 million in a pension, who requires £100,000 tax free, should only access a £400,000 section of the pension thereby leaving it possible to access 25% tax free on the remaining £600,000 part of the pension

Additional rules

This includes into QROPS or any other overseas UK recognised scheme
In theory, everyone can amalgamate all their pensions thereby potentially providing the maximum choice under the Open Market Option (OMO). The OMO allows individuals to use the best provider for their requirements. Since certain providers may have minimum amounts for investments, consolidation will offer individuals the greatest choice.

An option may become available in the future though this could prove difficult to enact due to the complicated and varied methods involved when valuing an annuity. To introduce such a measure fairly would have to include a transparent valuation method. In reality, due to the high potential for a mis-selling scandal the introduction of such an option is likely to be a long way off

These are mainly from government unfunded pension plans

This is due to certain consumers not trusting any organisation that holds a vested interest. Delivery partners will include the Pension Advisory Service (PAS) and the Money Advice Service (MAS)

Deemed unauthorised payments, those made that do not comply to pension rules, are subject to three tax charges;

Unauthorised payments charge

This charge is due in any circumstance where an unauthorised payment has been made.
The unauthorised payments charge rate is 40%

Unauthorised payments surcharge

This charge is usually due when a person’s unauthorised payment exceeds 25% of their overall pension value
The unauthorised payments surcharge rate is 15% resulting in a total combined tax charge of 55% for those affected

Scheme sanction charge

A scheme is liable to a sanction charge of 15-40% of any unauthorised payments made. A principle of good faith can be applied to ensure that scheme’s who have inadvertently processed an unauthorised payment can have the charge annulled if there had been reasonable grounds to assume the payment should, in fact, have been authorised

Pension rules

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UK pension rules and regulations written by Don MacRitchie average rating 4.9/5 - 12 user ratings