Pension's Loophole

January 19th, 2015

With the radical pension changes coming into force this April, The Telegraph has published an article on a potential loophole when taking your benefits via the incoem drawdown route.

“The Government has decided that on April 6 this limit will shrink from £40,000 a year to £10,000, cutting the amount retired and semi-retired people can save into pensions by three quarters. People can continue to save above these limits into pensions, but they won’t receive tax relief on the money.

However, savvy savers aged 55 or over can get around this by going now into “income drawdown” – the flexible alternative to an annuity – and withdrawing a minimum of £1 from their retirement fund before April 6.”

The article goes on to say:

“If you want to continue to invest more than £10,000 in one or more future years, you must not take more than the set annual income limit from your pot. This cap is set by mathematicians at the Government’s Actuary Department (GAD), and is known as the “GAD limit”.

To make things more complicated, the GAD rate differs from person to person and depends on factors including your age. It also varies from year to year. At the moment it is about 6pc for a 60-year-old. Your pension scheme or a financial adviser will be able to confirm your GAD rate with you.

Anyone who takes more than the GAD limit in pension income in any given year will lose their right to continue contributing up to £40,000 a year into a pension plan.”

Please click here to see the full article.