Money Talks

RFA LogoAs I am sure you have seen, the 2014 Budget proposed changes that could mean the biggest shake-up to UK pensions ever, potentially as soon as 2015.

After letting the dust settle, I thought it a fitting time to summarise the changes.

The proposals are targeted towards giving pension savers more freedom, choice and flexibility than ever before over how they access their pension savings.

If the changes go ahead, anyone of pension age would be able to draw as much (or as little) from their defined contribution pension pot as they wish.

These proposals will be consulted on this year, but in recognising the need for flexibility within pensions the Chancellor announced immediate changes to income drawdown and triviality rules that were affected from 27 March.

  • Capped income drawdown – maximum income limit up from 120 per cent to 150 per cent of the GAD basis amount
  • Flexible income drawdown – The yearly secured income needed to meet the “minimum income requirement” to access flexible drawdown will be cut from £20,000 to £12,000
  • Triviality limit up from £18k to £30k: Individuals over age 60, with total pension savings of £30,000 or less can take it all as a trivial commutation lump sum
  • Stranded pot rules relaxed: Three small pension pots of up to £10k can be taken as a lump sum – an increase from the current two pots of £2k.

These changes improve choice for more consumers who may otherwise have been forced to receive very small regular pensions for life, with limited ability to shop around for the best annuity. It’s important to remember, in all cases, up to 25 per cent of the lump sum can be paid tax-free with the balance taxed as income.

The key to all this is to remember that, although you may have the flexibility to take as much or as little from your pension as you want, you must consider the sustainability of your options. Taking more than you should is likely to mean that your pension pot doesn’t last as long as you do in retirement. And what will you do when you run out of money?

with Charlie Kearn
Independent Financial Adviser

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