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Leaving it late

Tue, 11th Oct 2011 - Author: Resident IFA

An Accountant referred a 74-year old to me in February. After a deal of procrastination, they are now keen to arrange their Pension income…with 3 weeks until they reach 75. Why is this crucial?

After age 75, any ‘uncrystallised’ Pension funds will be taxed at 55% upon death.

Whoa…go back a step…

Uncrystallised simply means that an income decision has not been made and actioned, using the available funds.

The decision could be broken down into 2 basic choices:

- Drawdown (Aka ‘Unsecured Income’); whereby the monies remain invested and income is taken from the fund (within limits).

- Annuity; whereby an income for life is chosen, using the Pension monies.

Until they reach age 75, death simply brings a ‘return of fund’ – the monies ‘in the pot’ being returned to their Dependents/Estate.

So, you can see the potential difference between crystallisation at 74 years and 364 days compared to reaching 75 without crystallisation.

Using this (extreme) example with a £100,000 fund, the difference on death would be £55,000.

No surprise, then, that I am running around trying to tie-up the necessary paperwork from 4 Pension providers and simultaneously build a coherent set of comparisons and options for my Client to make an informed choice of Drawdown vs. Annuity.

Oh, and he qualifies for an ‘Enhanced’ annuity (See previous Blogs)…no rest for the wicked!

Until next time…

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