The Chancellor has announced some of the most far
reaching changes to personal pensions that we have seen for some time. They are mainly aimed at providing a greater choice at retirement and remove the neccessity for an individual to purchase an
annuity. New rules came into force from on the 6th April 2015.There are new rules for the special classes of drawdown pension known as "capped " and "flexible". There are also new rules for pension
commutation. It is now possible to take the whole of your pension as a cash sum if in total, it does not exceed £30,000. However, caution is required becase only 25% is tax free, the balance is
added to your existing income and could put you into a higher rate tax band!!!!
General description of the new measures
A number of changes are being made to pension tax rules to reflect the greater flexibility individuals will
have to access their pension savings from age 55. The changes will:
- allow all of the funds in a money purchase arrangement to be taken as an authorised taxed lump sum,
removing the higher unauthorised payment tax charges;
- increase the flexibility of the income drawdown rules by removing the maximum ‘cap’ on withdrawal and minimum
income requirements for all new drawdown funds from 6 April 2015;
- enable those with ‘capped’ drawdown to convert to a new flexible drawdown fund once arranged with their scheme should they
- enable pension schemes to make payments directly from pension savings with 25 per cent taken tax-free
(instead of a tax-free lump sum);
- introduce a limited right for scheme trustees and managers to override their scheme’s rules to pay flexible
pensions and lump sums from money purchase pension savings;
- remove some restrictions on lifetime annuity payments;
- ensure that individuals do not exploit the new system to gain unintended tax advantages by introducing a
reduced annual allowance for money purchase savings where the individual has flexibly accessed their savings;
- increase the maximum value and scope of trivial commutation lump sum death benefits;
- provide new information requirements to ensure that individuals who have flexibly accessed their pension
savings are aware of the tax consequences of doing so;
- restrict and reduce certain tax charges that apply to death benefits; and
- make changes to the rules for individuals who receive UK tax relief in respect of pension savings in non-UK
pension schemes, so that the flexibilities and restrictions to relief will apply equally to them.
- allow pension "death benefits" to be passed tax free to beneficiaries if the pensioner dies before the age of 75, or
reduce the tax charge to the beneficiaries marginal rate if death occurs after age 75.
These changes bring an increased level of
complexity into retirement planning and the headlines understate the potential pitfalls. Whilst the Chancellor has announced that free "guidence" will be available to all retirees, it will be nothing
more than a broad brush overview of what is available and will not reflect the specific cicumstances of your own situation.
MHI provide a full pensions advisory service. We
will help you with your retirement planning to ensure that your goals, if possible, can be met and that yourincome is not eroded by inflation or that if you wish to provide for
your partner after your death that he or she is properly provided for. WE will look at your overall financial posision. With the population living longer than ever before it is very important to get
We are able to provide guidance on more complex arrangements such as pension drawdown. These avoid
locking into low annuity rates and you can have a wide choice of investment strategies.
Please contact us to discuss your
Flat-rate state pension set to be introduced in 2017
- The full state pension is currently £107.45 a week, but can be topped up to £142.70 with pension credit. However, it is estimated that more than one-and-a-half million pensioners do not claim the
pension credit that they are entitled to, and the government believes that this would not occur under a simpler flat-rate system.
- Under the new proposals a flat rate pension of £144 per week would be payable from 2017. To qualify for the full pension 35 years of National Insurance contributions will be required. Currently
only 30 are needed.
- Furthermore this will see the end of "contracting out", that is paying a lower rate of National Insurance because you are a member of a contracted out final salary scheme. This could cost
someone in a final salary pension scheme earning £25,000 a year an extra £270 a year national insurance.
- Low earners and the self employed are likely to be the main beneficiaries under the new arrangements while the loss of the ability to contract out may be yet
another nail in the coffin of final salary schemes.