Last week the Government gave a clear green light to the radical rewriting of the pension rule book. The Government delivers the Budget promise of much more pension flexibility and provides further detail on some of the changes in store from next April. We will ensure that customers are appraised of the new rules at their next review so use can be made of them if need be.
Today’s announcement confirmed:
- Pension flexibility will go ahead from April 2015.
- A lower £10,000 annual contribution allowance will apply after a client accesses flexibility, to counter abuse of the new freedom.
- The guidance guarantee (advice) will be delivered by a range of independent providers.
- Tax-free cash will stay at 25%.
- Pension transfers will still be allowed – but only after professional advice.
- Death benefit tax will come down from 55% – new tax rate to be confirmed in Autumn Statement.
- Normal minimum pension age is going up to 57 from 2028.
The points that are likely to be of most interest to our customers are;
Tax-free cash
Today’s announcement included welcome reassurance that the Government won’t tamper with the right to normally take 25% of a pension pot tax-free. This should give clients more confidence to keep their retirement savings inside the tax-advantaged pension wrapper until they’re needed
Death benefit tax to come down from 55%
The tax rate on lump sum death benefits paid from crystallised pots (including Income Drawdown) will be cut from the existing 55%. The new tax rate will be confirmed in the Autumn Statement.
This should encourage more clients to seek sustainable income models, rather than strip their funds out to avoid a 55% tax charge on death. Again, advice will be central to obtaining the most tax-efficient outcome to meet clients’ needs.
Please refer any queries to Jim or Alasdair.
