Pensions will always be a long term planning issue for the country and increasingly, Government policy has aimed to pass the responsibility for pension funding onto individuals.
The wide ranging reforms announced in the 2014 Budget for the taxation of Defined Contribution pension schemes will provide some much needed encouragement for pension savings. The reforms will provide flexibility in the way that pensions saving can be drawn on retirement and in doing so, will make pensions saving a much more attractive option.
Linked to the recent introduction of automatic enrolment , these changes will bring the UK into line with economics, like Australia, where through the use of drawn down flexibility, thy have been successful in creating public support and enthusiasm for pension saving.
Unlimited access to drawdown funds planned from 6 April 2015
The Chancellor surprised us all by freeing up people’s pension pots to allow unlimited access in retirement. This new level of flexibility will be attractive to both savers and those already in drawdown.
Greater flexibility from 27 March 2014
From 27 March 2014, the maximum annual amount that can be taken from a drawdown fund will increase by a quarter to 150% of the annuity rate. This increase will apply to drawdown years starting on or after 27 March 2014.
At the same time, Flexible Drawdown will be available to those with just £12,000 of secure pension income rather than the current £20,000. Some people could qualify just by State Pension alone, though this may all be academic given the planned changes from 6 April 2015.
Unprecedented flexibility from 6 April 2015
The big news, though, is that there will be no cap on income for anyone in drawdown from 6 April 2015. The income drawn is still subject to income tax, so this may limit the amount people decide to draw under the new rules, for example to avoid moving to a higher tax band.
This unlimited access will be exciting for many and will allow, for the first time, those in ill-health to draw a level of pension income that reflects their reduced life expectancy. It also means that those with drawdown funds which earn more than they are allowed to draw annually will no longer have to suffer the frustration of seeing their pension fund grow each year without being able to spend it.
This is also a big step towards simplification of drawdown and lower costs. No compulsory pension reviews and no additional complications of multiple review dates will make costs much lower.
The 55% tax rate on lump sum death benefits will be reviewed to make sure taxation of pension wealth remains fair.
Those with pension savings under £30,000 in total will, subject to certain criteria, have free access to their pension funds from 27 March 2014. 25% will be available tax-free and the rest subject to income tax.
The government plan to link the minimum age that you can normally access pension, currently age 55, to the State Pension Age. This means the earliest age to access pensions other than due to ill-health or other limited circumstances will increase to age 57 in 2028.
If you have any queries or concerns please do get in touch. Should you require a pensions review we can provide recommendationsfor local independent financial advisers who would be happy to assist.
For the full 2014 Budget Summary please click this link BWM 2014 Budget Report