New rules on pensions drawn at 75

Introduced in April this year, they give people the option of drawing cash from their accumulated pension funds at 75 rather than buying an annuity.

Now, to stop this being abused, there will be upper and lower limits to how much must be drawn down.

The drawdown must be worth between 65% and 90% of what an annuity would have cost the saver.

Very few people have so far taken advantage of the ASP rules.

But the government fears that astute financial advisers have been suggesting to their clients that they could accumulate large pension funds, aided by the standard tax benefits, but then draw down only minimal amounts.

Tax dodge?

When they die the remaining money could then be passed on to their children - albeit subject to inheritance tax - rather than be used to provide a steady income in retirement.

To stop savers doing this, further restrictions will be put in place.

If there is any money left in the ASP fund when the saver dies, it can be used to buy a pension for a dependent, for example a spouse, or be given to a charity.

But if any residue is passed to other family members such as a child then it will be slapped with a penal charge off up to 70%.

Meanwhile the existing inheritance tax charge on ASP funds will stay in place.

The new rules should come into effect from 6 April 2007.