Pensions get flexible with zero-inflation proofing

14 April 2005
Pensions have become more flexible in this new financial year as new zero-inflation proofing rules no longer require company pension schemes to adjust pensions to the rate of inflation.

Until April 6th this year, pensions paid from defined contribution/money purchase company pension schemes were required to ensure their retiring members received a pension that would escalate annually in accordance with the rate of inflation.

The degree of escalation was determined by which Inland Revenue rules the retired employee fell into, leading to a lack of flexibility. It also led to a lower starting level of payment compared with standard level annuity schemes.

"In practical terms, this is great news as it now allows retiring individuals to tailor their pension income to their own specific requirements," states Peter Quinton of The Annuity Bureau, which had campaigned for the change in the law.

Mr Quinton recommends that those planning for their retirement think carefully about what kind of lifestyle they want to enjoy - and how long it may last.

He advises: "It is key for those approaching retirement to get advice and understand that today's retirees are living longer in retirement on average than they ever have before."

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