NEWSLETTER: Budget 2014: Important changes to pensions
Contributed by MW Pensions
21 March, 2014
The Budget on 19th March 2014 introduced some major changes to pension provision, which make them more flexible and hopefully more attractive as a long term savings vehicle. Some changes come into force as from 27th March 2014 and some from a later date.
Full details can be found at:
Changes effective 27th March 2014
Increase in maximum drawdown
The maximum drawdown will increase for capped drawdown pensioners to 150% of the relevant GAD rate. This will apply for all drawdown pension years starting on or after 27th March 2014.
Lowering of Minimum Income Requirement for Flexible Drawdown
The Minimum Income Requirement for Flexible Drawdown will reduce to £12,000 per annum for all individuals who apply for flexible access to their drawdown pension on or after 27th March 2014.
Increase in Trivialisation Limit
The trivial commutation limit will rise to £30,000 and will apply to all commutation periods starting on or after 27th March 2014. This will allow members over 60, with total pension savings of £30,000 or less, to take out all of those savings as one or more trivial commutation lump sums (though anything in excess of the Pension Commencement Lump Sum will be subject to tax at their marginal rate).
Small Pension Pots
The amount that can be taken as a taxed lump sum from small pension pots rises from £2,000 to £10,000 and will apply to all payments made on or after 27 March 2014. From the same date the number of small post that can be taken will rise to three.
Increased pension flexibility
Legislation will be introduced in a future bill to allow those with defined contribution pension savings to draw down from them from age 55 from April 2015, subject to their marginal rate of income tax and their
pension scheme rules. The Government will consult on how best to implement this. So does this mean that the Minimum Income Requirement for Flexible Drawdown will be reduced to zero? Indeed will Flexible Drawdown effectively disappear as it will be by definition available to one and all?
The Government will also consult on increasing the minimum pension age so that it remains ten years below state pension age, for which legislation will also be introduced in a future bill.
Pensions tax: abolish the age 75 rule
The Government will explore with interested parties whether those tax rules that prevent individuals aged 75 and over from claiming tax relief on their pension contributions should be amended or abolished.
Qualifying non-UK pension schemes
The Government will consult on ways to give equivalent treatment to Qualifying non-UK Pension Schemes (QNUPS) and to UK-registered pension schemes, to ensure fairness and remove opportunities to avoid inheritance tax. Legislation will be introduced in Finance Bill 2015.
Legislation will be introduced in Finance Bill 2014 to give HMRC new powers to help prevent pension liberation schemes being registered, and make it easier for HMRC to de-register schemes. These include a requirement that the scheme administrator must be a fit and proper person, and a provision that surrendering rights in favour of an employer is subject to tax as an unauthorised payment.
Legislation will also be introduced in the Finance Bill to ensure that regulatory redress in the form of transfers of sums and assets to registered pension schemes under certain court orders are taxed and relieved appropriately, and independent trustees appointed at the instigation of the Regulator will no longer be liable for tax that arose before they were appointed. These changes will have effect from 20th March 2014, except for changes relating to the fit and proper person test and regulatory interventions, which will have effect from 1st September 2014. The Government will also work with stakeholders to consider if any further legislative changes are required to combat pension liberation
We do not give financial advice and no comments here are intended as such. The above information is based on our understanding of the legislation governing pensions at the time of writing. Before taking any action you should consult a qualified financial and/or tax adviser. Levels, bases of and reliefs from taxation may be subject to change.
This Newsletter is intended for professional advisors only, not members of the general public
Authorised and Regulated by the Financial Services Authority
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