But women need to be aware of their options to ensure they benefit from this opportunity
Women taking capped income from their pension could benefit from a significant income uplift next tax year.
They may need to take action to achieve this, and it is important they are aware of the potential opportunity that could exist.
There are two new factors which will potentially boost income for women taking capped income from their pension savings, they are:
1. From 21 December 2012, gender neutrality comes into play. For women this means capped income withdrawal calculations will be based on male rather than female income factors, which will be higher. This means that from this date, when their pension income is next reviewed, women will be able to take more income.
2. Following the Chancellors Autumn statement, the formula used to calculate maximum capped income withdrawal levels will see a 20% uplift. This will lead to a rise in the maximum amount of income available to pension savers who went into income withdrawal, or had an income review, on or after 6 April 2011. (Pre 6 April 2011 the 20% uplift was available).
No date for when this change will become effective has been announced yet, but it is widely expected that the government will want consumers to benefit sooner rather than later, so the start of the new tax year is a real possibility.
The important point to highlight is that women may not benefit from this enhancement unless they take action. The first key issue to check is whether their current pension contract offers an annual review facility. If it doesn't (and the arrangement started on or after 6 April 2006), rather than wait for the next statutory review period which could be two or more years away, they could consider one of the following options (subject to the flexibility of their current arrangement):
♦ If they have money held in their pension which they have not yet started to take income withdrawals from, some of this money could be released and added to the income withdrawal fund. The income formula used on the new money would apply to the entire amount in the income withdrawal fund - not just the new money moved across.
♦ If all of their pension savings are already in the income withdrawal fund, and they haven't reached their 75th birthday, they could top-up their pension by making a new contribution. This new money can then be moved across to the income withdrawal fund, and as above, the entire income will be recalculated on the enhanced basis.
Adrian Walker, Skandia's pension expert, comments:
"There is a real opportunity for women using capped income withdrawal to receive more income from their savings next tax year. This could be of benefit for those who have seen the maximum annual income withdrawal from their pension decrease significantly in the last two years as a result of falling gilt yields and previous policy change by this Government. When the start date of the new uplift is announced it won't have immediate benefit to all, so it's important that people are aware of the options available to them. One simple check women could do now is to confirm whether their current capped income contract offers an annual review facility. If it doesn't then they should consider seeking financial advice to discuss other alternatives that may be available to them."
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