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Are you ready for pensions shake-up? In part two of our countdown to A-Day, Jane Hall reveals what you should be doing to prepare.

Byline: Jane Hall

WHAT do US desperado Butch Cassidy, poet Elizabeth Barrett-Browning, escape artist Harry Houdini and reggae musician Bob Marley all have in common?

They were all born on April 6. Now the date is set to mark another arrival. But this long awaited ``birth'' will be accompanied by the sort of hype and razzmatazz that only a very important addition to the world could generate.

For April 6, 2006, will breathe new life into Britain's ailing pensions system.

Dubbed A-Day by the Inland Revenue, it is the date that has been chosen to launch the most dramatic overhaul of our pensions rules since the concept of saving for old age was first introduced nearly 100 years ago.

Out will go the current regime of eight unwieldy tax rules to be replaced by a single set covering both private and work schemes.

As reported in last week's Your Money, the main principles of the reforms have already been agreed and will have implications for almost everyone saving into a pension.

Changes will include the raising of the minimum retirement age to 55; the scrapping of the requirement to take an annuity at 75; the ability to pass on any unused pension as a lump sum to depend ants and, for the first time, the opportunity to hold noncommercial property within your pension along with other investments such as fine wines, vintage cars, antiques and art.

While the A-Day reforms don't sweep in for another 13 months, however, now is the time you should be considering your options under the new regime - and brushing up on your pension position.

Here the Daily Post outlines what action you should be taking.

There will be a new single lifetime allowance (LTA) of pounds 1. 5m, rising to pounds 1. 8m in 2010/11, on individual aggregate pension funds. Anything over this will be heavily taxed unless you have undertaken some planning beforehand.

There is scope if you are near or above the lifetime limit to pay as much as you can into your pension before the deadline. Get advice as to your best course of action before A-Day.

If you are retiring after April 6, 2006, you will have greater flexibility in how you take your pension. For example, it will be possible to take up to 25pc of a fund that has been built up by contracting out of the Serps state pension in tax-free cash.

Review your pension with an adviser as a matter of urgency to see if there are advantages in waiting. And investigate how you might fund your retirement if you have to stop work but have to delay taking your pension. Have you savings to tide you over?

Some existing pensions, including section 32 contracts and Retirement Annuity Contracts (RACs), may have more generous allowances for tax-free cash than the 25pc of the fund that will be the norm after A-Day.

Take advice now there is still a chance to pay in extra money before the end of the tax year.

From April 6, 2006, you will be able to make a tax-relieved contribution up to the lower of your annual earnings or pounds 215, 000. This limit will be increased each year until it reaches pounds 255, 000 in 2010/11.

Most people will be able to put more into their pensions, taxefficiently, than they do at present.

You will need to be professionally advised on your new contribution limits going forward.

A single set of investment standards will apply to all schemes. These will include allowing investment in residential property and so-called personal chattels such as art, antiques, vintage cars and fine wine.

Get advice concerning the new residential funds becoming available for pensions investment.

Income Drawdown (to be known as ``Unsecured Income'') rules are to be relaxed, and will apply to existing plans.

Everyone who has an existing plan should obtain suitable independent advice in the light of the relaxation of the rules.

The current requirement to take out an annuity at age 75 with all your remaining pension funds is being relaxed. Instead you will have the option of taking an Alternative Secured Income (ASI) plan.

This is a major change from the current regime and must be discussed as soon as possible with an independent financial advisor.

Employers will be able to offer truly flexible retirement options for the first time, allowing staff to work part-time and draw a pension from the same company.

It will also be possible to take tax-free cash from AVCs Start asking questions of your pensions department now.


The road ahead. . . Be sure to take professional advice in case you take the wrong path
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Copyright 2005 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Business
Publication:Daily Post (Liverpool, England)
Date:Feb 21, 2005
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