Taking A SIPP At 75

Posted on: 01 August 2008 by Gareth Hargreaves

Those nearing 75 should weigh up carefully all the options available for drawing a pension.


People saving for retirement should consider carefully all their options for taking income from their SIPP as they approach the age of 75, urges SIPP provider Alliance Trust Savings.

Many people saving for retirement will be confused about their options. There are widely held misconceptions about pensions rules, such as that annuities are the only option for people aged 75 and over to take SIPP income, when this is not the case.

It's important to consider the different types of income available when you retire. It is not true that all individuals must purchase an annuity by age 75. Some pensions, SIPPs for example, allow individuals to continue to withdraw an income directly from their pension fund under the Alternatively Secured Pension (ASP) rules.

ASPs are not right for everyone, however, as the income available for withdrawal from an ASP fund is not guaranteed because it will depend on how the investments chosen within the ASP perform over time and changes to long-term interest rates.

Income limits for those with an ASP fund are recalculated annually.

In addition, those saving for retirement also need to bear in mind the costs associated with running an ASP fund and the taxation position of any remaining ASP fund on death.

When approaching 75, each person will need to make a choice about the type of income they receive from their pension. The table below shows the differences between annuities and ASPs.

 

Annuity

ASP

Income payments guaranteed for life

Yes

Yes, but maximum income is recalculated annually and dependent on investment performance and changes to long-term interest rates

Ability to provide income for spouse, civil partner on death

Yes - optional

Yes - compulsory

Ability to pass remaining funds to charity following death

No

Yes

Ability for lump sum payment to be made to third party following death

No

Yes - but subject to significant tax charges

As the administration of ASP is more complex, especially on death, not all personal pension and SIPP providers provide this option for members.

The government and pensions providers should help clarify the rules, according to Alliance Trust.

The Conservative party is currently trying to amend the government's personal accounts legislation, to remove the obligation to buy an annuity by age 75.

By also avoiding punitive tax charges on death, the government would be taking a vital step towards encouraging people to save for retirement using these accounts.

Pensions Development Manager for Alliance Trust Steve Latto says, "We would encourage the government to think carefully about ways to encourage future generations to save for retirement."

"While it has stated that it does not want pension funds to be used as a mechanism to pass on assets on death, if the transfer could be made to the pension fund of another family member this could help provide future generations with a decent income in retirement without having to rely on the state."

"It would also make saving for your own retirement a much more attractive option, if you knew that any wealth, unused in your own lifetime, could be transferred into the pension pot of the next generation."

What's Your View?

Are you contemplating drawing a pension? Or helping your parents sort out their financial affairs? Is it important to you to be able to pass on any unused money to your family when you die? You can share your views by leaving a comment below, or discuss pensions with others in the 50connect forum.

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