Submitted by Sestini & Co
| on Thu, 03/20/2014 - 19:23 | In Uncategorized
There are many ways to celebrate the International Day of Happiness, here are a few you might want to try:
In addition, you could think about your pension provision, aided and abetted by what has been heralded by some as: “the most radical overhaul of pensions since… well, ever”. And there I was thinking that “A Day” in 2006 was as dramatic as it gets when pensions are concerned. Not to mention Gordon Brown’s removal of the dividend tax credit in 1997 :-/
But rather than limiting pensions as recent changes have done, the changes in this budget were all about pension flexibility – primarily making it easier and cheaper to draw money out. At the moment, the changes are focused on defined contribution pensions (i.e. those where you build up your own investment pot within a pension wrapper) rather than defined benefit schemes where you have an income guarantee, usually based on a proportion of salary at or near retirement.
The changes coming into effect from 27 March 2014 are as follows:
- reducing the amount of guaranteed annual income people need in retirement to access their savings flexibly, from £20,000 to £12,000 – i.e. post retirement, if you have provable income of £12,000 in addition to your pension pot you can withdraw as much as you want from your pension;
- increasing the amount of total ‘small’ pension savings that can be taken as a lump sum, from £18,000 to £30,000;
- increasing the capped drawdown withdrawal limit from 120% to 150% of an equivalent annuity;
- increasing the maximum size of a small pension pot which can be taken as a lump sum (regardless of total pension wealth) from £2,000 to £10,000 and increasing the number of personal pots that can be taken under these rules from two to three,
More changes are due to come in from April 2015:
- tax restrictions on pensioners’ access to their pension pots will be removed, ending the requirement to buy an annuity – one wonders what will happen to companies who make their money by providing annuities;
- Taxable part of pension pot taken as cash on retirement to be charged at normal income tax rate, down from 55%;
- From 2028 people will not be able to draw their private pension benefits without a tax penalty until age 57;
- This private pension retirement age will then increase each year so it is 10 years lower than state pension age; and last but not least…
- Everyone retiring with a private pension pot will receive free and impartial face-to-face guidance on the choices they face when deciding how to use their retirement savings.
In summary, the lack of flexibility and punitive taxes on passing on pensions have been removed, so pensions once again have the potential to become a tax effective and attractive savings vehicle. If this does cause an inflow of money into pensions, it’s key that people can access the right advice from experts in the field. Always check your adviser’s experience and qualifications before handing over any money…
On that note, the last provision is for me the most surprising: the government have set aside £20m to pay financial advisers to give this advice, I’ve yet to work out how much this is per client or how it will be managed but hopefully it is positive news for the independent advisers who’ve been investing much time and effort since the retail distribution review.
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