The Government yesterday published their ‘Freedom and choice in pensions: Government response to the consultation’ document. This announced that it was full systems go following their Budget announcement to implement changes in legislation from April 2015 that permit distinctly greater flexibility in how individuals take benefits in retirement.
Whilst the minutiae of the rules and regulations that will be imposed regarding pension flexibility have yet to be firmed up, some details were confirmed: –
Once individuals access the permitted flexibility, the Annual Allowance will reduce from £40,000 to £10,000. This will avoid potential abuse of the freedom by ensuring that pension income released cannot be recycled back into the pension as tax relievable contributions to boost the retirement pot.
- Tax free cash shall remain unchanged at the current level of 25%.
- Pre-retirement defined benefit transfers will be permitted to transfer to defined contribution arrangements to access the new income flexibility if they so wish, however, this will only be permitted if they’ve taken FCA regulated independent financial advice on the matter.
- The current tax rate of 55% upon the death of an individual in drawdown will be reduced, although the exact rate to which this will fall has yet to be announced. This will be confirmed within the Chancellor’s Autumn Statement. The thinking behind this is to encourage pensioners to seek a sustainable approach towards the production of their pension income rather than stripping their retirement pots subject to a lower Income Tax rate to avoid a higher 55% charge upon death.
- The minimum retirement age will indeed be increasing from 55 to 57 from 2028. This ties in with the State pension age increasing to 67. Thereafter, the minimum retirement age will be linked to 10 years prior to State pension age.
We will keep clients informed as and when more details are announced, however, should you wish to discuss your requirements, don’t hesitate to contact us.