The 2014 budget has seen one of the biggest changes in pensions for some time. Very briefly the main points are:
- The maximum drawdown available is increased from 120% of the GAD rates to 150%. This applies to pension years commencing on or after 27th March.
- Flexible Drawdown – In order that benefits are not restricted to the GAD rates, the minimum income requirement is reduced from £20,000 to £12,000 per annum for all applications on or after 27th March.
- Small Pension Pots – at age 60:
– If an arrangement is valued at less than £10,000 then this can be paid as a lump sum subject to a tax charge (maximum 3 arrangements).
– If total pension arrangements are £30,000 or less, then again these can be paid as a lump sum, subject to a tax charge.
From 2015 it is anticipated that the minimum income requirement of £12,000 for Flexible Drawdown will not apply and that Members can decide what level of income they want to take from their pension arrangements.
Further details will follow. These are very brief points on the changes in legislation and full details will follow.
So, what does this all mean?
This is excellent news for those wishing to manage their retirement funds and draw income in a manner best suited to themselves.
All payments are subject to tax at marginal rates. This is a move that is seen to provide flexibility for scheme members but will provide the Treasury with much needed tax in the short-term. It is possible to fully exhaust a pension fund.
Care needs to be taken when drawing large sums from a pension fund that are subject to marginal rate tax that might then be retained – and might then be subject to Inheritance Tax at a further 40%.
Consideration should also be given as to what happens when the pension fund is fully exhausted. Where will income then come from?
Act now to take advantage of ISA allowances
We are approaching the 5th April. This is an opportune time to remind you to take advantage of the tax efficient investments available into Individual Savings Accounts (ISAs). A maximum of £11,520 can be invested in an ISA with up to £5,760 going into a Cash ISA.
A maximum of £3,720 can be paid into a Junior ISA or Child Trust Fund.
Personal Pension Contributions
Personal pension contributions should be made before the 5th April if tax relief is to be obtained in the current tax year.
Please do not hesitate to contact us if you want further information on any of the above.
Robert Taylor – 21st March 2014