Pension Changes - Freedom and Choice

By Mattioli Woods

01 Sep 2014

The government has now published more detail on its pension changes and the results of its consultation on “freedom and choice in pensions.”

The principles that underpin these reforms are:

Fairness – The tax consequences should be fair to all, as in pensioners and those who pay current tax.

Choice – This should be placed back with the individual

Proportionality – Administrative consequences should be borne by individuals, insurers, pension schemes and government alike.

Some of the points remained unchanged, some we have further clarity on and in others the new proposals still remain unclear:

These are the key issues from the proposals:

Guidance versus advice

It would appear that the guidance service that will be offered from April 2015 will be delivered by a number of partners including The Pension’s Advisory Service (TPAS) and the Money Advisory Service (MAS). It has already been commented that these organisations are not resourced to be able to deal with the volume of enquiries that will come their way in April 2015. In addition consumers will be further confused as to guidance versus advice since it is noticeable that both of these services have advice in their title. The cost of this service this will be borne by financial services firms by way of a levy.

Tax Charges on Death

It is stated once again that the government is clear that the 55% tax charge on pension savings in a drawdown account on death will be too high when the new system is established in 2015. Commentators are hoping that the present 55% will be reduced to say 40% which is in line with the present inheritance tax charge. The government however only intends to announce the changes to this at the Autumn Statement.

Minimum Pension Age

The government have confirmed that they will increase the minimum age at which people can access their pensions under the new tax laws from 55 to 57 in 2028, this is in line with the increase in the state pension age. The minimum age will then follow the increasing state pension age, but will remain at 10 years below state pension age. The exceptions are public sector schemes that do not link their normal pension age to state pension age such as fire-fighters, police and armed forces.

Annual Allowance

In order to combat the potential for recycling money that is drawn from pension schemes by way of a tax relieved contribution back into schemes with immediate withdrawal of 25% tax free cash, the government have introduced a new annual allowance of £10,000. This will apply to those in flexible drawdown already from April 2015, with these benefitting from not currently being able to contribute to having a £10,000 allowance. This will be the new annual allowance for all who take benefits post April 2015 that draw above their tax free cash limits. Those currently in drawdown who would have a £40,000 allowance will be grandfathered over to allow this to continue post April 2015 unless they draw more than their cap. How this cap will be monitored is unclear, so formal pension reviews may remain for certain clients.

Flexibility in Annuities

The government has also thrown a life line for annuity providers. The ten year restriction on guarantees is removed. The annuity can pay out for any period after the members death provided it is set out in the annuity contract. They are also going to allow for annuities that can change (to go down as well as up) in payment value, for example when the state pension became payable. Whilst all this sounds like paradise this increased flexibility will obviously come at a price which in turn may likely result in a lower income. However, annuities will remain a valuable option for certain individuals.

Defined Benefit/Final Salary Transfers

There has already been much debate about the restrictions that were to apply to the transfer of defined benefit schemes. The government have confirmed that they will allow transfers to the new flexible arrangements for defined benefit schemes other than those government schemes which are unfunded.

They have introduced two new safeguards to protect against individuals who may be encouraged to leave those guarantees. The first is that an individual must take advice from a professional financial adviser who is independent from the defined benefit scheme and authorised by the Financial Conduct Authority (FCA) before a transfer can be accepted. There will also be new guidance to the trustees on the use of their existing powers to delay transfer payments and take account of scheme funding levels when deciding on transfer values.

For certain individuals such as those to whom death benefits are very important defined benefit transfers could still be the correct answer, but receiving financial advice will be key to the decision.

Practical Steps

It should also be noted that government intend the legislation to allow for this flexibility regardless of an individuals schemes rules. However, it would appear that not all providers will look to offer the flexibility. We suggest that you check with your pensions provider to establish if they will offer the full range of options.

Further information and guidance will become available, as the draft legislation is open for consultation. To read more about the pension changes click the HMRC website. The pension changes will be introduced in the Autumn Statement in a Taxation of Pensions Bill.

To discuss the pension changes and how they will affect you then please contact Kerry Houghton on 01772 550614. See more at: http://sippssas.taypat.co.uk/pension-changes-freedom-choice/#sthash.5yGwK1RM.dpuf

Latest news

1

Britain's best butcher opens shop in Lancashire Roast Mutton

Britain's best butcher opens shop in Lancashire

22 Apr 2024

2

FWP begins work on Bacup Market redevelopment project Bacup Market Visual FWP

FWP begins work on Bacup Market redevelopment project

22 Apr 2024

3

Don't slip up - put safety and comfort first Jon Holt Delta Plus UK

Don't slip up - put safety and comfort first

22 Apr 2024

4

Marsden launches grants to support community projects Marsden Building Society Office

Marsden launches grants to support community projects

22 Apr 2024

5

Businesses support Hyndburn Food Pantry refurbishment Chair Eddy O Brien was joined by the Mayor of Hyndburn as well as trustees and volunteers for the official opening of the refurbished Hyndburn Food Pantry.jpg.jpg

Businesses support Hyndburn Food Pantry refurbishment

22 Apr 2024

Hwc 2024 Email Signature 980x120
Background image for hub sign up block

LBV Hub

Reach 50,000 members of the Lancashire business community

Post your news
Post your events
Post your offers
Company profile
Social reach
Magazine coverage
Sign-up
Events
Health and Wellbeing Conference 2024
Hwc 2024 Social Media 1200px 1
Networking
23 Apr 2024

Health and Wellbeing Conference 2024

Crow Wood Hotel, Burnley , BB12 0RT

08:30 - 13:00

Help to Grow Management Course
HTG2.png.png
LBV Hub Seminars
15 Apr 2024 - 17 Jul 2024

Help to Grow Management Course

Preston Campus , Preston , PR1 2HE

09:30 - 14:00

HR Complete Training Programme: Equality and Diversity
Picture1.png.png
LBV Hub Webinar
23 Apr 2024

HR Complete Training Programme: Equality and Diversity

Online (Zoom)

09:30 - 11:00

Business Networking in Blackburn - BNI Vista
EVENT LISTING SIZING Vista.png.png
LBV Hub Networking
23 Apr 2024

Business Networking in Blackburn - BNI Vista

Hampton by Hilton, 2 Frontier Ave, Blackburn, BB1 3AL

06:45 - 08:30

Emergency First Aid at Work
Chamber Logo1.png.png
LBV Hub Seminars
23 Apr 2024

Emergency First Aid at Work

FGH Training, 3rd Floor, Storey House, White Cross Business Park, Lancaster, LA1 4XQ

09:00 - 16:00

Business Networking in Chorley - BNI Endeavour
EVENT LISTING SIZING Endeavour.png.png
LBV Hub Networking
23 Apr 2024

Business Networking in Chorley - BNI Endeavour

Oak Royal, Bury Lane, Chorley, PR6 8SW

06:30 - 08:30

Your Business Bootcamp Bitesize: "Roger That… The Importance of Asking Twice"
CBP-logo LBV.png.png
LBV Hub Webinar
24 Apr 2024 - 24 Apr 2024

Your Business Bootcamp Bitesize: "Roger That… The Importance of Asking Twice"

Online, Online, Online

08:00 - 09:30

Business Networking in Accrington - BNI Zeus
EVENT LISTING SIZING Zeus.png.png
LBV Hub Networking
24 Apr 2024

Business Networking in Accrington - BNI Zeus

The Mill House, Corn Mill Yard, Accrington, BB5 5HX

06:45 - 08:30

Chamber Breakfast Networking
Chamber Logo1.png.png
LBV Hub Networking
24 Apr 2024

Chamber Breakfast Networking

Lancaster & Morecambe College, Lancaster, LA1 2TZ

08:00 - 10:00

30 Minutes: Net Zero Introduction for Blackpool Businesses - Free online event
BU 2024 Events.jpg.jpg
LBV Hub Webinar
24 Apr 2024 - 24 Apr 2024

30 Minutes: Net Zero Introduction for Blackpool Businesses - Free online event

Online, Blackpool , FY4 1EW

10:00 - 10:30

Business Networking in Lancaster - Eden Business Network
EVENT LISTING Eden Business Network.png.png
LBV Hub Networking
24 Apr 2024

Business Networking in Lancaster - Eden Business Network

The Borough, 3 Dalton Square, Lancaster, LA1 1PP

18:30 - 20:30

Business Networking in Preston - BNI Diamond
EVENT LISTING BNI Diamond.png.png
LBV Hub Networking
24 Apr 2024

Business Networking in Preston - BNI Diamond

The Marriot Hotel, Garstang Road, Broughton, PR3 5JB

07:15 - 09:00

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more Lbv115 Online Graphic
Subscribe now

Weekly news bulletin