When benefits are taken from a SIPP, a check of the fund value against the Lifetime Allowance will be triggered which is called a Benefit Crystallisation Event (BCE).
Benefits can be taken as follows:
25% of the fund may be taken as a tax free lump sum.
The balance of the fund (75%) may be taken as a pension, known as Income Drawdown. Pension can be taken between a maximum limit, 120% of GAD and a minimum limit which is nil. This means that a member could take their tax free lump sum and not take any pension.
The GAD factor is found using the Government Actuary’s Department tables and is based on the member’s age and the current Gilt yield.
Pensions will be reviewed at least every five years and with effect from 06/04/2007 can be reviewed annually if requested by the member. We are able to reset the five year period, provided the review is on an anniversary of the benefits being taken.
Benefits can currently be taken from age 50, however with effect from 6th April 2010 the retirement age under registered pension schemes increases to age 55.
The member must have taken all of their tax free cash before their 75th Birthday.
From Age 75
At age 75, the member has the option of purchasing an annuity or continuing to take benefits from the fund by entering into Alternatively Secured Pension (ASP).
ASP is based on a maximum pension of 90% of GAD (for a 75 year old irrespective of member’s age) and a minimum pension of 55% of GAD per annum.
ASP Pensions are reviewed annually and are based on the GAD factors for a 75 year old and gender even if the member is over 75 years of age.
Scheme Pension
A scheme pension is a pension paid to a scheme member by a registered pension scheme.
A scheme pension is a secured pension, and is now allowable under all registered pension schemes provided their rules allow it. We offer scheme pension using our Flexible Income Pension Plan (FIPP).
A scheme pension can be taken after the offer and refusal of an annuity and is available before the age of 75.
There are no maximum pension limits or any HMRC restrictions on the rate of pension escalation. There are anti-avoidance provisions, designed to prevent a scheme pension being pitched at an unsustainably high level initially.
A reduction in pension to less than 80% of the original pension paid to a member in the first 12 months, gives rise to an automatic unauthorised payments charge of 40%.
Dependants’ Benefits
Dependants’ benefits can be paid as:
- An annuity
- An unsecured pension, if the dependent is under the age of 75
- An alternatively secured pension, if the dependent is over 75 years of age
- A scheme pension – as long as the option of the annuity has been offered and declined