What does the Chancellors pension revolution mean for us?

atush

gallygirl wrote: »

Sorry if I've missed this, I haven't seen a clear answer and have only had time to read first 1/2 of thread in detail so far.

So - I take 25% tax free and possibly more, taxed at marginal rate, making sure I stay below the 40% threshold.

What happens to the rest? At present there is an annuity option and drawdown option. The annity option is still there and so is drawdown but I can't see any clear instructions on drawdown. There is also a hint (on Telegraph arcticle linked to on here, sorry, can't find it) about 'other options'.

I will have a share of 30k+ income from btl investments and a few small pensions when I get to 60. Nowhere near the 20k pension income required at the moment for drawdown.

What I'd like to know is - if I have say 70k left in the pot can I decide how much income I want to take each year (and then pay tax on it)? Ideally I'd like to empty the pension pot over a number of years and invest in ISA's to give tax free income. is there any clear guidance on income drawdown or equivalent?

Thanks.

What happens is what you want to happen. Buy an annuity, leave it in DD so you can take a further tranche next year, leave it as cash in your pension etc. There may be new products.

Yes, with 70K you could draw down enough to live n each year and bank the rest in an ISA or if you are still working, DD 30K each year (if you are married) and fill Isas with it. 15K single

Francesca7777

Hello, I just want to make sure I understand this all right... I've got three private work-related pension policies... one at £23K, one at £4K and one at £11K. I turn 55 in September. With the current guidelines of there being a maximum of a £10K policy that you can cash in, presumably I could cash in the £4K one in September on my 55th birthday, and then the other two (£23K and £11K) at April 2015? Does that make sense? Thanks!

BigMac1_2

lvader wrote: »

To me it simply looks a flexible drawdown without the need to prove 20K income, it's a big deal for me and the wife.

Yep that is what it looks like to me too. Yippee!:T

atush

Truthseeker wrote: »

Yes, if you intend to withdraw that much.

But no Nics so not quite like a salary of 100K

Francesca7777

I have one more question, and this will sound a really thicko question, so sorry for that. But now with this ability for so many to cash their pensions in early (albeit with an income tax liability to pay), won't that mean that future pension fund growth will become seriously compromised?

coastline

Seems like theres been similar cases in Australia...pensioners using their funds to repay debts..

http://www.macrobusiness.com.au/2013/08/have-the-boomers-blown-their-retirement/

How its pans out in the UK remains to be seen...I can imagine people with smaller pots will take the lot if possible.
I can also see pensioners helping grandchildren with deposits for houses...keep the housing bubble going and government happy with money sloshing around.
Maybe the best solution is for people to take a bit more than an annuity would pay and keep things steady....I'm not sure the government have thought this through and they've reconsidered a few policies in this parliament so far.

According to this link the average pension pot isnt that great..

http://www.moneywise.co.uk/pensions/managing-your-pension/10-pension-mistakes-you-cant-afford-to-make

gallygirl

Linton wrote: »

Looking through this thread it seems I had come to a different conclusion to many of the posters with respect to full access to the funds in a pension pot. I thought what he was proposing was that at the moment when you crystallise your pension you now have the option of drawdown or an annuity. He could simply be adding the third choice of taking the pot as a taxed cash lump sum. This is rather different to putting everyone into flexible drawdown.

The other lack of clarity would seem to be whether the the lump sum is really taxed at the current marginal rate or simply treated as income. I havent found anything on the net where what the chancellor said is clearly, fully and definitively explained.

However, did he say the advice was free? What I heard was that people would have the right to access advice, which of course they have now.

https://www.gov.uk/government/speeches/chancellor-george-osbornes-budget-2014-speech

I am announcing today that we will legislate to remove all remaining tax restrictions on how pensioners have access to their pension pots.

Pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want.

That suggests flexible drawdown with no limitations.

And we’re going to introduce a new guarantee, enforced by law, that everyone who retires on these defined contribution pensions will be offered free, impartial, face-to-face advice on how to get the most from the choices they will now have.

But instead of the punitive 55% tax that exists now if you try to take the rest, anything else you take out of your pension will simply be taxed at normal marginal tax rates – as with any other income. So not a 55% tax but a 20% tax for most pensioners.

The phrase 'as with any other income' I think is at odds with 'marginal tax rates' - e.g. it suggests 40% tax only on the part above the threshold rather than the whole amount which is what I take 'marginal tax rate' to mean?

kidmugsy

How it'll pan out is simple. Lots of people will blew the lot and then demand that taxpayers subsidise them. The Guardian and BBC will keen loudly on their behalf: "hard-working, needy, blah-di-blah". Politicians, wanting their votes, will oblige.

OldBeanz

A yippee from me as well. While I was able to claim flexible drawdown, my wife could not and she was going to have to earn under the tax threshold for 6/7 years. About to start stuffing her pension to give her enough to give her a lump sum and enough to top her up to £10.5k until her state pension kicks in.

Linton

Francesca7777 wrote: »

I have one more question, and this will sound a really thicko question, so sorry for that. But now with this ability for so many to cash their pensions in early (albeit with an income tax liability to pay), won't that mean that future pension fund growth will become seriously compromised?

Obviously it could seriously affect those foolish people who cash in the lot for the life of riley for a year. But it shouldnt affect anyone who doesnt cash-in their pension. Your ownership of n units of a pension fund gives you the gains from a certain number of underlying shares or bonds. This isnt affected by other people selling their pension fund units and the pension company selling the corresponding number of investments.

One might at first sight think that the whole population selling off all their pensions as soon as the proposals come into effect could have some affect on the stock market. However the % of the population who would be at the right age but not have already bought an annuity or have the knowledge to go for drawdown would be pretty small.