Pension reforms explained
From 27 March 2014 the government will:
• Cut the annual minimum income requirement for those applying to start flexible drawdown from £20,000 to £12,000.
• Raise the maximum yearly income allowed under the pension capped drawdown rules by 25%, from 120% to 150% of the Government Actuary’s Department rate to allow more flexibility for savers.
• Increase the size of the lump sum small pot five-fold to £10,000 and almost double the total pension savings you can take as a lump sum to £30,000
• Increase the amount small individual pension pots can be taken as a lump sum from £2,000 to £10,000. And increase the number of small personal pension pots that can be taken as a lump sum from two to three.
From April 2015:
• Everyone in a defined contribution (DC) scheme will be able to access their entire pension from age 55.
• The pension commencement lump sum (25% of the fund) will remain tax free and any income taken after this time can be taken without limit and taxed at the saver’s marginal rate.
• The change will be fully retrospective so anyone in drawdown can benefit from the change.
• No transfers will be allowed from public sector defined benefit (DB) schemes to DC pension schemes. Private sector DB schemes will be free to decide whether to adopt such controls.
• Lump sum death benefits – The government feels that the 55% tax rate on lump sum death benefits is too high. The consultation process for change will kick off now.
Key points from AJ Bell and Standard Life