The March Budget 2014 saw George Osbourne announce some of the biggest changes to how pension benefits can be taken, for more than 50 years. The news has and will have a major impact for future retirees. Here is our Financial Advisers guide to what you need to know about the Budget 2014 Pension changes.
- Fundamental reform will mean that people will no longer be required to buy an annuity.
- This affect people invested in defined contribution (DC) schemes and can effectively do what they want with their money.
- People will be able to either choose to buy an annuity,, or they can withdraw all of their pension funds subject to their marginal rate of tax (rather than a 55% charge).
- The government is also set to introduce a new guarantee that everyone who retires with a defined contribution pension will be offered what it calls “free and impartial face-to-face guidance” on their choices at the point of retirement. How this is going to be implemented and by whom we will have to wait and see.
- The government is to set aside £20m to providers and schemes over the next two years to develop this initiative. Again we will have to wait and see how this will work out.
- As the first step of this reform, from 27 March, the government will:
- Reduce the amount of guaranteed pension income people need in retirement to access their pension using Flexible Drawdown, from £20,000 to £12,000
- Increase the capped drawdown limit from 120% to 150%. It is not long ago that the limit was 100%, so this is a considerable change.
- Increase the size of a single pension pot that can be taken as a lump sum (trivial commutation), from £2,000 to £10,000.
- Increase the number of pension pots of below £10,000 that can be taken as a lump sum, from two to three.
- Increase the overall size of pension savings that can be taken as a lump sum, from £18,000 to £30,000.
Overall this has been a very big day for pensions and the changes will undoubtedly change the retirement planning landscape. Far more retirees are now likely to consider some form of Drawdown instead of an annuity. However, we believe that annuities will still have a place for many people using their pension fund.
The above article should not be construed as advice and should not be seen as such. Always seek professional financial advice before making any decisions.
If you require investment advice for future planning please contact us as Midlands Investment Agency or call us on 01902 742221.
