Annual Allowance: the maximum that can be contributed to all pension schemes from any source in any one tax year

The Annual Allowance has been set at £50,000 or 100% of your earned income, whichever is the lower.

You can now carry forward any unused annual allowance for up to three tax years. This concession is backdated to tax years since 2008/09, but based on the new annual allowance of £50,000.

Full tax relief at your marginal rate can be claimed on your personal contribution up to a maximum of 100% of your earned income.

Lifetime Allowance: the maximum you can accrue in all pension schemes during your lifetime

This is without there being a tax charge, and is tested when you start to draw the benefits, or at age 75.

The standard lifetime allowance will be reduced from £1.8m to £1.5m from 6 April 2012. If the allowance has been exceeded, there is a tax charge of either 55% or 25% depending on how the funds are used.

Taking Benefits: there is now no requirement to start drawing pension benefits prior to age 77

You can hold on to your pension fund, unused, for as long as you live. However, once you reach age 75, there is a 55% flat tax charge on any lump sum death benefits (whether you have drawn your pension or not).

If you select the draw down option, the maximum withdrawal from a pension plan is roughly equivalent to a single person’s level annuity. This is more formally defined as 100% of a revised HMRC/GAD rate table (previously 120%). This will be reviewed within your pension plan every three years. The rates are below.

Those with existing draw down arrangements retain their current maximum until their next review.

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When selecting the income draw down, there are two options:

  1. Capped draw down: the level of withdrawals are capped based on the HMRC/GAD figures listed above.
  2. Flexible draw down: if your total annual pension income (referred to as secured income, basically annuities and Company and State pension schemes) is at least £20,000, you can opt for ‘flexible draw down’ instead of the capped version. This removes the ceiling on what you can withdraw. In theory, you could withdraw your entire pension fund in on e (taxable) payment.

Death Benefits: if your pension fund remains untouched (un-crystallised) and you die prior to age 75, the value passes to your beneficiaries tax free.

If you die after age 75, or if you have selected income draw down, and the proceeds are passed to your spouse or dependents, to be used as a pension fund, there will be now tax liability.

If you die after 75, with an untouched pension scheme or if you have selected income draw down, and the fund passes to your beneficiaries as a cash lump sum, the fund will incur a tax charge of 55% and the proceeds will not be subject to Inheritance Tax.


These notes are a scaled down summary of the principle points that came from March 2011’s Budget regarding pension provision. They are deliberately written to be easily understood and scan read.

Where a statement is made, there will normally be qualifying rules alongside which I have deliberately left out. The words ‘normally’ or ‘usually’ should be inserted with every statement.

It is absolutely vital, that is you intent to take action, or, intend to take inaction based on what you have read, that you please consult James Harvey Associates in order to understand the full ruling.