IHTM17021 - Pensions: types of pension scheme: registered pension schemes

A registered pension scheme is a scheme that has been registered with HMRC on or after 6 April 2006. Schemes that were approved by HMRC Pensions before then were automatically registered on that date.

A registered pension scheme and its scheme members are entitled to various tax reliefs on contributions into the scheme and growth within the scheme subject to certain limits. For Inheritance Tax purposes there are some situations where contributions can trigger a tax charge. You can find details of these at IHTM17035 onwards.

For registered schemes, on retirement at a minimum age of 55, a member is entitled to take a maximum tax-free lump sum of 25% of the fund that is being crystallised (coming into payment). The remainder from that fund:

• can be used to provide a pension or annuity,
• can be kept invested as a crystallised fund from which the member may draw down income within certain limits, or
• from 6 April 2015 a person in a defined contribution scheme (IHTM17020) can access the whole of their pension fund in a single lump sum, subject to income tax charges.

A member may have one or more arrangements within a pension scheme, so they may choose to crystallise only part of the total funds available at any time. This makes pension schemes very flexible products for financial planning.

Many pension schemes changed their rules after 6 April 2006 to take advantage of the more generous tax provisions but some arrangements are still subject to more restrictive rules that were in place beforehand.

Before 22 June 2010, a member was obliged to annuitize at age 75 unless the funds were retained as an alternatively secured pension (IHTM17350). The requirement to annuitize ceased from 6 April 2011 and there is no longer a requirement to annuitize at any age.

From 6 April 2015 further flexibility was provided by the Taxation of Pensions Act 2014 in the way people can access their pensions, including the ability to withdraw the whole fund in a single lump sum, subject to Income Tax charges.

Pension schemes must operate within a statutory framework but will have their own rules regarding retirement dates, maximum lump sums, payment of pension income and so on. Not all pension schemes will therefore offer all the flexibility that the legislation provides.