New Pension Drawdown Rules today.

Aegis

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.

People with large pension pots deserve to have more flexibility because there's a lower mortality risk associated with how they have managed to save for their retirement, i.e. they are less likely to run out of money if they rely on income drawdown right through to death.

Income drawdown has been available for some time now, and it is almost exclusively used for larger pension pots for exactly the reason described above, coupled with the fact that it's usually a lot more complex and expensive to manage, therefore not worthwhile for small pots.

Larger pension pots need to be considered carefully when making legislation, as the rules which work fine for smaller pots simply haven't been fair for larger pots, as the tax burden can become outrageously high on death (to the point where I've seen cases where people simply gave instructions to donate away their remaining pension money on death).

Stargazer57

Gatser wrote: »

...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.

Perhaps you haven't read the document yet.
http://www.hm-treasury.gov.uk/d/consult_age_75_annuity_responses.pdf
There are some examples in Annex A which I would think most people would understand. Just about everyone will have a state pension, possibly including S2P to count towards the 20K, and many will have some occupational pension as well.
But you have clearly got to be at the richer end of the pensions income distribution to contemplate taking advantage of the Minimum Income Requirement.

wotsthat

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.

It's not quite the conspiracy you think as this has been expected for some time.

One way to bridge the inequality gap is to force people to save for retirement but oh no can't have as that wouldn't be fair on some poor downtrodden group or other.

I assume you'd prefer a jealousy tax where money is simply taken from frugal savers and passed to the 'poor'.

hugheskevi

...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.

A key drawback for me is that for the £20,000 qualifying amount it is only pension income in payment which counts. So State Pension counts as zero until it comes into payment.

That might not matter if you have a decent defined benefit pension coming into payment earlier, as you can use that to qualify for the £20,000 level.

But if all your pension wealth is in defined contribution, you have no choice but to annuitise a huge amount of the pot should you want to exercise flexible drawdown early (eg age 55).

So this extra flexibility might not be so good for people building up large personal pensions to facilitate early retirement ahead of occupational pensions coming into payment. And it seems to be much better for those with defined benefit income which counts toward the target after which DC pots can be commuted, rather than those with exclusively defined contribution pots which require an annuity to meet the target.

wotsthat

So this extra flexibility might not be so good for people building up large personal pensions to facilitate early retirement ahead of occupational pensions coming into payment. And it seems to be much better for those with defined benefit income which counts toward the target after which DC pots can be commuted, rather than those with exclusively defined contribution pots which require an annuity to meet the target.

Although that's a function of the advantages of defined benefit schemes rather than this legislation itself.

For those of us with only personal pensions it does seem that there will be a need to purchase an annuity before we can access the rest of the pot but at least some meaningful control is being handed over.

peterg1965

So if I read this correctly, it means that if I have a occupational pension (final salary) 'in payment' of well over £20K per annum and I also, in addition, have a SIPP pot of £500K, I can crystalise the SIPP and take my 25% Tax free lump sum, and with the remaining £375K I can access any amount of this a any time subjetc to my prevailing rate of tax? Is this correct?

hugheskevi

and with the remaining £375K I can access any amount of this a any time subjetc to my prevailing rate of tax? Is this correct?

All correct, but the £375,000 would count as income in the year you received it, so most of it would be taxed at 40%+ income tax as your annual income would be recorded at about £400,000.

peterg1965

hugheskevi wrote: »

All correct, but the £375,000 would count as income in the year you received it, so most of it would be taxed at 40%+ income tax as your annual income would be recorded at about £400,000.

I have to say, I appear to be in a very good position, and this gives me huge amounts of flexibility when I retire. These changes will radically alter my mortgage replayment plans, for the better.

Milarky

Para 3.25

some respondents suggested that the Government could exempt a fixed initial amount from the recovery charge, e.g. £10,000 or £20,000. However, this would create significant opportunities for avoidance and administrative complexity, as individuals could split their savings between multiple drawdown arrangements so as to ensure that they fell below the taxable threshold;

I don't see how this is possible, given the tax charge applies upon death. In effect, the government are claiming that they (or a solicitor) couldn't 'do the sums' (add the deceased separate pension pots together) to arrive at a total and then deduct £10k (or £20k) just once and then take 55% of this amount. This amounts to saying that they could give several deductions under a single reference (i.e. National Insurance number) and not notice they had done this. This implies that no one in HMRC will ever do a cross check. What does this implied lack of confidence in their own abilities with the public's finances say about how much of the rest of what they say makes sense - or holds water?

wotsthat

peterg1965 wrote: »

I have to say, I appear to be in a very good position, and this gives me huge amounts of flexibility when I retire. These changes will radically alter my mortgage replayment plans, for the better.

I agree although it's always best to build in a margin of safety as the longer you have until retirement the greater the chance that things will change less favourably.

For example if you maxxed out pension payments at the expense of repaying mortgage capital and then found the rules changed (and they can change suddenly) you could be in a sticky position.