You have the freedom to choose when and how to take your pension with the rule that compelled you to take your pension (buy an annuity) by age 75 being withdrawn.

Pensioners will also be allowed to remain in drawdown, or even put off taking any sort of retirement income from their pension, for life. The previous 82% tax charge on pension assets when they pass to beneficiaries on death has also been reduced significantly to 55%, making it far more attractive for you to pay into your pension and consider the Inheritance Tax benefit of doing do.

In fact the drawdown route is even more flexible as of 6th April 2011, because you are now able to choose between the old capped income drawdown, or a new flexible drawdown option, as long as you meet the minimum income requirements (£20,000 per annum of pension income including State pension). The amount you receive from capped drawdown will be reviewed every 3 years, or every 5 years after age 75.

The maximum pension contribution limit has been reduced to £50,000 per annum (down from £255,000). However the good news is that you will benefit from tax relief at your highest marginal rate. That is, a basic rate taxpayer will receive 20% tax relief, a higher rate tax payer 40% and a 50% tax payer 50% relief.

Although the allowance is now only £50,000 you can take advantage of any unused allowance from the previous three tax years, which as of 6th April 2011 also effectively have an allowance of £50,000 each. So in any one tax year the maximum you could put into a pension would be £200,000 assuming you did not pay into a pension at all in the previous three tax years.

The previous government’s complicated rules surrounding high earners and restricted tax relief has been discarded. As have the complicated rules surrounding the anti-forestalling measures and special annual allowances etc.

The lifetime allowance will be reduced from April 2012. The full lifetime allowance will be reduced to £1.5m, down from £1.8m. Although this sounds like a large pension pot to many, people with defined benefit (final salary) pension schemes could get caught out by this.

Golden Rule
The sooner you invest the longer your money has to grow and benefit from the power of compounding.

Scary Thought
You could spend up to 40 years or more in retirement. How are you going to fund this?

How Much
To buy an income of £30,000 a year in retirement you would need a pension worth £600,000 assuming a 5% return each year. There is no getting away from that or thinking it’s too big a number to think about. One day you will wish you had thought about it earlier. Now is your chance.

Simple Solution
Investing in a little retirement advice could be the best decision you’ve ever made.

As of 6th April 2010 once a contribution to a pension has been made the money cannot be accessed until you are 55 years of age. This is now the minimum retirement age for accessing your personal pension.

If you are under the age of 75 and a UK resident you should be eligible to contribute in to a pension.

Annual contributions to a personal pension are limited to 100% of gross UK earnings, subject to a maximum of £50,000.

The new £50,000 annual pension contribution limit will apply to each of the last three tax years and can be used to make up any allowance not utilised previously in those tax years.

Any income or capital gains made within a pension plan are free of income tax and capital gains tax.

There is no limit to the number of pension plans you can contribute to so long as the overall maximum amounts are kept to.

To credit your pension with a gross contribution of £1,000 you only need to pay in £800 as the HM Revenue & Customs will provide an income tax rebate of £200 and pay this directly in to your pension to make it up to £1,000.

Higher rate taxpayers can claim a further 20% rebate via their tax return, so £1,000 in your pension fund will only cost you £600 of your own money. Additional rate taxpayers can claim 30% relief in addition to the 20% credited at source.

Those that have no income can still contribute a maximum of £3,600 gross per annum – that is you put in £2,880 and the Revenue will put in £720.

There is a limit to the overall size of your pension fund that is allowable – the lifetime allowance. This is £1.8 million in the 201/12 tax year, and will be reduced to £1.5 million in the 2012/13 tax year. If your total pension assets are close to or already exceed this limit, or may do once a contribution has been made then it is important that you seek expert independent advice on this matter before taking any action. If the allowance is exceeded you may have to pay up to 55% as a tax charge on the excess.

Assets built up within a pension will pass to your beneficiaries on death, as long as you have completed an ‘expression of wishes’ form, and will be free of any inheritance tax. However assets that remain invested within a pension on death will pass to beneficiaries subject to a 55% tax charge.

When you retire you can normally take up to 25% of the value of your personal pension fund as a tax free lump sum.

In fact the current pension rules allow you to withdraw 25% of the value of your pension as a tax free cash lump sum, without needing to take any income under the new income drawdown rules.

You could take your pension and still continue to work if you wish. This may be a valuable option for those looking to work a reduced number of hours each week towards retirement. However this will of course depend on your employer.

The remainder of your pension fund can then be used to purchase an annuity, or to withdraw income from the invested pension fund via drawdown.

An annuity will provide a guaranteed income for the rest of your life. The amount of income the provider offers you will depend on the value of your fund, the options you take with the annuity and your personal details such as gender and age.

There are a wide variety of options now when you are at the stage of wanting to take an income from your pension fund so do seek independent advice before making any decisions.

Retirement age – the minimum age at which personal pension benefits can be taken is 55 from 6th April 2010. The state retirement age remains at 65 for men and 60 for women. However for women this will increase from 60 to 65 gradually between 2010 and 2020 depending on your date of birth. The coalition government will also bring forward the increase in retirement age for men. It is thought at this point in time that the increase to age 66 will be introduced in around 2016.

Triviality – if the value of all your pension assets is below 1% of the lifetime allowance then you can withdraw all of the assets as a cash lump sum after the age of 60. In 2011/12 the lifetime allowance is £1,800,000 and so if all of your pension assets are worth less than £18,000 and you are over 60 years of age then you could just withdraw this amount as a lump sum. However only 25% of the total sum will be paid out tax free, the remaining 75% will be taxed as normal income although it will be paid as a lump sum.

There are two main types of pension – a personal pension and a company (or occupational) pension.

The two types of occupational pension scheme are a final salary (defined benefit) and a money purchase (defined contribution).

Money purchase schemes are similar to a personal pension in that a retirement fund is built up over the years based on your own contributions, and used to purchase an annuity on retirement.

Final salary schemes encourage the employee to build up a number of years in service and use that to determine the level of benefit they will receive on retirement as a proportion of their final salary leading up to retirement.

Personal and stakeholder pensions are a product you can take out yourself to take ownership of the income you can look forward to in retirement. A fund is built up depending on the amount you contribute and the length of time those contributions are made for. The way in which the fund is invested can also have a significant impact on the end value at retirement.

Self invested personal pensions (SIPPs) have become more popular to the masses but remain a type of personal pension primarily for people that have more complicated investment requirements and potentially larger investment pots. However, more often than not the additional costs of a SIP a rarely justified.

It’s a specialist type of personal pension that allows you to invest in a far broader range of investments that are not permitted in normal personal pensions such as futures, options, REITs (real-estate investment trusts) and unquoted shares.