New Pension Drawdown Rules today.

Loughton_Monkey

Looks like we'll get the proposals today.

http://www.bbc.co.uk/news/business-11949166

The sting is in the tail, though. Firstly, they don't want you to draw too much down, in case you spend it all and then sponge more on the state (fair enough).

But if you suffer the indignity of dying before you've drawn it all down, then Mr Osbourne is going to take his "Fair Share" of 55% of what's left.

So a sort of "Pension Inheritance Tax"!

Pension annuitisation legislation to be published

Draft legislation to give greater flexibility to pension savers will be published by the Treasury on Thursday.

The proposed law will, as promised in the June emergency Budget, remove the effective obligation to buy an annuity at age 75.
More flexible options will include continued investment or moving to a process called "income draw-down".

However the new law will stop people spending all their pension savings and then falling back on the state.

"Those with large pension funds and other sources of income which allow them to pass any [state benefits] means test are likely to benefit most from any enhanced flexibility," said George Bull of accountants Baker Tilly.

"Most contributors are still likely to opt for an annuity which will more or less provide a guaranteed income for life," he added.

The new pension legislation will form part of the 2011 Finance Bill.

"The new rules will mean that you won't need to buy an annuity
from a life insurance company, you can just drain your pension savings directly instead," said annuity expert Billy Burrows.

"However the government intends to increase the tax rate from 35% to 55% on any lump sum left over to your inheritors from this pension pot when you die."

Aegis

Loughton_Monkey wrote: »

Looks like we'll get the proposals today.

http://www.bbc.co.uk/news/business-11949166

The sting is in the tail, though. Firstly, they don't want you to draw too much down, in case you spend it all and then sponge more on the state (fair enough).

But if you suffer the indignity of dying before you've drawn it all down, then Mr Osbourne is going to take his "Fair Share" of 55% of what's left.

So a sort of "Pension Inheritance Tax"!

Far better than the old rules for over 75s where the effective tax rate was about 85%...

Cautious_Investor_3

Aegis wrote: »

Far better than the old rules for over 75s where the effective tax rate was about 85%...

Agreed.

Although for most little will change.

The sooner legislation is introduced to increase the take up of Open Market Options (OMO) the better. There are still an amazing number of people who do not use their OMO and somply take up the annuity offered to them by their current provider who have (I believe) no obligation to tell the potential annuitant about the possibility of an enhanced annuity or that other options may be available to them.

The Cautious Investor

hugheskevi

But if you suffer the indignity of dying before you've drawn it all down, then Mr Osbourne is going to take his "Fair Share" of 55% of what's left.

I can see why Mr Osbourne feels he has a right to some of it.

A higher-rate taxpayer (and some now will be on marginal rates of 50% or even 60%) contributing via salary sacrifice, benefitting from (largely) tax free returns on investments, and then getting 25% tax free lump sum...that is a lot of tax relief, so I can see the point of Mr Osbourne thinking that this tax relief shouldn't end up going into inheritance.

purch

New Pension Drawdown Rules today

I can't wait !!! :eek:




Oh, I don't need to.


They've already told the BBC what's happening :T

Pinot

Ah but will you be able to draw down more BEFORE you get to 75 ?
Or is this just to be part of the removal of the annuity requirement at 75 ?
I ideally want to end up giving George Osborne 55% of about £20,
but I suspect it will be on about half of what's left

middlepuss

Here it is:

http://www.bbc.co.uk/news/business-11949166

wotsthat

Looks like a step towards treating those who have saved for their retirement like adults.

As I read the BBC article (rather than the proposals themselves) those who can demonstrate that they have a secure retirement of £20,000 or so will be able to take more from their pots.

I wonder what this 'more' will be. If you can pretty much take all of it and pay the appropriate tax then it might be worthwhile in some cases syphoning off as much as possible even at 40% tax to avoid the 55% death tax.

JamesU

hugheskevi wrote: »

I can see why Mr Osbourne feels he has a right to some of it.

A higher-rate taxpayer (and some now will be on marginal rates of 50% or even 60%) contributing via salary sacrifice, benefitting from (largely) tax free returns on investments, and then getting 25% tax free lump sum...that is a lot of tax relief, so I can see the point of Mr Osbourne thinking that this tax relief shouldn't end up going into inheritance.

In the abscence of an employer contribution I find the merit for 20% tax payers setting up a private pension questionable.

For 20% tax payers, tax rebate in, benefit of investing this additional capital over time, then 20% tax when taking it out. But 55% tax on death. And in addition, risks of future governmental tinkering through any further legislative changes to annuities. Then of course the fact there is no way of knowing what future annuity rates will be, and many people dislike setting these up anyway. And if going the unsecured pension route, risk of: changes to drawdown arrangements, caps on amount withdrawn, changes in taxation. Basically numerous risks, no control over these in the future, and restrictions on how to manage your personal pension finances.

The 55% tax on top of this on death (albeit reduced from previous rates) is excessive for 20% taxpayers and far more detrimental to them relative to 40%+ tax payers. I feel that the risk/reward/tax in-out balance has too many drawbacks and that there is little point in 20% taxpayers setting up a pension when the same investment for retirement can be achieved within a S+S ISA, with no tax on drawdown, fewer risks and uncertainty, and more control over finances. Even for 40% tax payers the benefits of a pension may be marginal.

Interesting article here on the limitations, worth a read for those interested:

http://www.investorschronicle.co.uk/InvestmentGuides/FinancialPlanning/article/20100723/70a39996-95a4-11df-bbc9-00144f2af8e8/So-long-compulsory-annuitisation.jsp


JamesU

Cautious_Investor_3

Son_of_Spooky wrote: »

Now the truth......... Oh yes, as you would expect a change which benefit the rich only. Sneaked into the news to be buried by the student loans story. What this means is that the rich will be able to spend their pension as they choose and if they die pass the balance on to their heirs. But not for the poor, oh no can't have that, they will not be able to do that and will effectively have to buy an annuity which the pension company keeps when they die. Brought in by the part of the rich, Clegg and Cameron and the other millionaire etc... Never missing a chance to increase the inequality gap.

And what do you propose instead?

The quote "But not for the poor, oh no can't have that, they will not be able to do that and will effectively have to buy an annuity which the pension company keeps when they die" is factually incorrect, the money from people who die early is used to subsidise the pensions of those whol live longer, it is not a windfall for the life companies.

The Cautious Investor

PS the idea that this has been announced on a day when the media is looking elsewhere is not really correct either, these plans were trailed in July and are welcomed by most people, not just "the rich"

Gatser

wotsthat wrote: »

Looks like a step towards treating those who have saved for their retirement like adults.

As I read the BBC article (rather than the proposals themselves) those who can demonstrate that they have a secure retirement of £20,000 or so will be able to take more from their pots.

I wonder what this 'more' will be. If you can pretty much take all of it and pay the appropriate tax then it might be worthwhile in some cases syphoning off as much as possible even at 40% tax to avoid the 55% death tax.

...and how does the SECURE £20k work if, say, you have a Personal Pension pot of £500k?
Would you need to buy (Suffer more like) an annuity of £20k (costing c.£350k of the pot)...
then have more flexibility to get to the surplus £150k....?
Perhaps this has not been finalised yet.