The radical pensions changes, announced back in the March budget by Chancellor George Osborne, were given approval on 21 July 2014. The main thrust of the proposals have been adopted in full and a few other areas have been clarified somewhat.
The newly liberalised pension regime comes into effect in April 2015. Currently, most investors aged 55 or over can take up to 25% of their pension fund as a tax-free cash sum, using the rest to purchase a taxable income, usually via an annuity. However, from April 2015, investors will be able to take the whole of their pension fund as a lump sum after age 55, ending their requirement to buy an annuity. The first 25% of this lump sum will be tax free, whilst the rest will be subject to tax at the investor’s marginal rate. This will provide a great deal more flexibility for pension investors, who will now be able to choose between withdrawing all their pension money immediately, leaving it invested and taking income when required, or buying an annuity.
As well as taking cash, from next April, the limits have been removed for new investors in income drawdown, allowing investors to draw as much income as they like.
The aim is also to allow the creation of more flexible annuities, for example allowing pensioners to withdraw lump sums or take a larger income in the early years of retirement.
For full details of all the pension changes, contact Kellands today.
Another change affects the age at which you can draw your pension. This is set to increase from 55 to 57 in 2028, and will then remain 10 years below the State Pension age then in force.
The government has stated that around 18 million people will be able to benefit from these changes. However, the impact of the new rules will depend on your age and when you plan to take your pension, so getting financial advice is important.
As mentioned in a post-budget article at the time, the date of April 2015 was selected partly to allow pension providers to get their systems and practices ready to cope with these major changes. From reports in this weekend’s Sunday Times, it would appear that some pension providers will not be implementing the systems in full and will not be forced to do so by the government. In the past, when pension rules have changed, some providers have not offered the new options, whilst others have been slower in doing so. Again, this is something to bear in mind when planning for your future retirement – and where financial advice could be useful.