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3: RESTRICTIONS TO
CONTRIBUTIONS
Pension contributions are subject to a
£40,000 annual allowance (which will
remain after April 2015) and specific
contribution rules. However, after
April 2015 if a withdrawal is made
from a DC pension as well as a tax-free
sum, contributions to DC plans could
also be restricted to £10,000.
This could affect anyone in a DC, SIPP
or AVC scheme worth more than
£10,000 and taking income from it
after April 2015, unless:
a) The pension is worth £10,000 or
less and taken as a ‘small pot’; this
can be done up to three times from a
personal pension and unlimited times
from occupational ones.
b) The pensioner enters capped
draw-down before April 2015 and
withdrawals after that remain within
the current draw-down limit, even if
more funds are applied to the same
plan.
c) The pension is taken as a lifetime
annuity or scheme pension.
This £10,000 limit does not apply to
any benefits accruing in a DB pension;
those already in flexible draw-down
before April 2015 will be able to make
contributions of up to £10,000 a year
(currently zero).
4: TRANSFERRING A DB (FINAL
SALARY) PENSION
From April 2015, those in a DB
scheme will be able to make unlimited
withdrawals from their pension
providing that they transfer to a
defined contribution pension (e.g. a
SIPP). However, as this could result in
the loss of very valuable benefits, it is a
requirement that the investor receives
independent financial advice first.
In his Budget speech George Osborne
announced that everyone should
have access to free guidance to help
themmake sense of their options
at retirement. This service will be
provided via a range of channels –
online, phone or face-to-face - by
impartial organisations such as the
Pensions Advisory Service or the
Money Advice Service. It will no longer
be possible to transfer frommost
public sector pension schemes.
5: RETIREMENT AGE
Investors can currently access their
pension at age 55; from 2028 this will
rise to 57 and thereafter increase in
line with the rise in the State Pension
age – remaining ten years below.
6: REDUCTION IN TAX PAID
ON DEATH
The Chancellor has also slashed
the tax rate applied to outstanding
pension funds upon death of the
pensioner – the so called ‘death tax’.
At the recent Conservative Party
conference George Osborne
announced that pension funds paid out
before or after the age of 75 will no
longer be subject to the 55% tax levy
when transferred as a lump sum within
a pension. In addition, beneficiaries of
those who die under the age of 75 will
not pay any tax on withdrawals, even
if they take the fund as a single lump
sum. Over the age of 75 withdrawals
will be taxed at marginal rate and
lump sums initially at 45%. However,
some observers have declared this
announcement, which would cost
the Treasury £150m, ‘too good to be
true’ and there is some suspicion that
legislation in its support will in some
way water down its effect.
From April 2015, a pension provider
will be obliged to tell its investors
about the access to free advice that
is available but there is concern
that because of the sheer numbers
involved, the guidance on offer is likely
to be generic at best. However, many
may be disappointed to find that they
are excluded from the new facility
because most pension schemes are
not built to allow people to use them
like bank accounts; under the new
government rules, they don’t have any
obligation to allow people to withdraw
cash as they like.
Ms Altmann commented that most
pension companies do not make it
easy for pensioners to withdraw their
pensions and urged them to accept the
Government’s pension reforms and
give people greater freedoms. With
the much heralded freedom that Mr
Osborne’s pension reforms deliver
comes the requirement for caution;
those weighing their options should
seek the best available advice if they
have any doubt as to the best course
of action according to their individual
circumstances.
Whilst some premium brands may
be licking their [exquisitely sculpted]
lips at the prospect of a large influx
of newly liberated pension funds,
over the coming months DIY Investor
Magazine will be exploring the ways
in which the prudent DIY investor can
maximise their advantage from the
new rules and make the very most of
their funds in retirement.
