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On 6 April this year, the start of the 2006/07 tax year, pensions A-Day arrives, bringing with it a brave new world for pensions in the UK. On A-Day, eight different pensions regimes will be replaced by a single, simple set of rules which have been designed to make pensions far more attractive, accessible and flexible. Personally, I don't need any extra encouragement to invest in pensions, because I'm already a big fan. However, if you need a push to invest in a pension, HM Revenue & Customs have highlighted these ten key facts to help you take the plunge: 1. All existing rules governing pensions will be scrapped, to be replaced with a single, universal regime which applies to all workers and prospective pensioners. 2. For the first time ever, you will be able to contribute to more than one pension scheme at the same time. 3. There is no limit on the amount of money that you can save in a pension, or the number of pension schemes you can contribute to (although there are limits on the amount of tax relief you can claim). 4. You can claim tax relief on contributions of up to 100% of your annual earnings, subject to an upper annual allowance of £215,000. For each £100 that you save, the government adds £28.21, and higher-rate taxpayers can claim a further £23.08 tax rebate via their tax returns. 5. Even if you don't pay tax, you can still claim tax relief on your contributions. Indeed, you can put in up to £2,808 per tax year and HM Revenue & Customs will add another £792, making a total of £3,600. 6. At present, you cannot retire, claim a company pension and keep working for that company. Under the flexible retirement options being introduced from A-Day onwards, you can enjoy flexible retirement by receiving a pension and salary from the same employer. 7. You can take up to a quarter (25%) of your pension fund as a tax-free lump sum. From A-Day, this will include pension pots built up by additional voluntary contributions (AVCs) and contracting-out of SERPS and the State Second Pension (pensions paid in addition to the basic State Retirement Pension). 8. You may face a tax charge of up to 55% if your pension pot is worth more than the new Lifetime Allowance when you come to take your pension. However, only the seriously well-off will be affected, as this allowance is very generous: £1.5 million in 2006/07, rising to £1.8 million by 2010/11. So, only fat cats need worry about this limit! 9. If you do have a very large pension pot, you have the right to "protect" your fund from the above-mentioned Lifetime Allowance Charge, simply by submitting the correct form to HM Revenue & Customs within three years of A-Day. Hence, wealthy workers have until 5 April 2009 to exercise this right. 10. Some people may have to wait longer before you can claim a pension. From 6 April 2010 (four years after A-Day), you will not be able to take normal retirement before reaching 55. However, you will still be able to take early retirement due to ill health, plus if you have the right to retire before fifty on, that right may be protected. I know that pension planning is far from being a sexy topic, but I hope that the above news makes you a little bit more optimistic about pensions come A-Day! Indeed, I hope that A-Day will entice many workers back into investing in pensions, because less than half of working adults currently contribute to a pension, as I warned in The Crazy World Of Pensions! Personally, I can't wait for 6 April to arrive, because the new regime will allow me to put even more into my pension. Although I'm presently paying in a fifth of my pre-tax income into my personal pension (the legal maximum for someone of my age under the current regime), I need all the help I can get to plug the eight-year black hole that I have in my "pension CV". So, A-Day gets a big thumbs-up from me, especially as all these extra pensions contributions help to slash my tax bill! More: Check out the deals in the Fool's Pensions centre | Claim your £7,000 tax-free ISA allowance before 6 April!
