Requirement to buy an annuity being raised to age 77Budget Announcement: June 2010 The Government has announced that it will end the effective requirement to use a pension fund to buy an annuity by age 75 with effect from December 2011. Pending implementation of the necessary changes, legislation will be introduced in Finance Bill 2010 to increase to 77 the age by which members of registered pension schemes have to buy an annuity or otherwise secure a pension income. This change will also apply for the purposes of the inheritance tax (IHT) charges that specifically apply to pension scheme members aged 75 and over. The increase in the age by which the member must secure an income has effect on and after 22 June 2010. This change will also apply for IHT purposes to members, who die on or after that date. In both cases the change applies only to individuals, who have not yet reached age 75 before 22 June 2010. For scheme members with money purchase arrangements who have not yet bought an annuity by age 75, the income withdrawals they may make currently become subject to strict minimum and maximum limits from age 75. Also, if such a member dies after reaching age 75 and any of the fund is not used to pay either pensions to dependants or a charitable donation, it is subject to tax charges up to 70%. Specific IHT charges also apply to certain pension scheme members who die on or after their 75th birthday. For scheme members with money purchase arrangements who have not yet bought an annuity and reach age 75 on or after 22 June 2010:
- the strict minimum and maximum limits on income withdrawals will apply from their 77th instead of their 75th birthday;
- immediately before their 75th birthday they will become entitled to income withdrawal and a tax free pension commencement lump sum in respect of those funds not previously made available for income withdrawal; and
- in the interim period before the main changes have effect in 2011-12, there will be tax charges of 35% on lump sum death benefits paid by the scheme if they die on or after 22 June 2010 and aged 75 or over. The specific IHT death charges on pension scheme members, who are in drawdown and are aged 75 or over when they die, will not apply in these circumstances. Previously there could have been tax charges up to 82% of the value of the drawdown fund.