MSE News: Budget 2014: Radical reforms to give greater access to pensions savings

atush

mojy wrote: »

Can anyone clarify the situation with final salary pension schemes. I currently pay into a final salary pension scheme but have a final salary pension from an old job with is only for a small amount of money. Would I still not be able to access this pension at 55?

While you possibly could, you dont' want to.

Why? because this is the best pension out there (and dare I say better than the get your hands on the whole lot type).

After all, what would you do with the money if you could get it tomorrow? Spend it? Invest it? Give it away? Nothing you could do with it would be more than what you will get by keeping it;.

So keep it. and save into a DC pension as well/outside and get the best of both worlds.

clivep

Deneb wrote: »

Clivep, you must be a mind reader. The same question occurred to me this afternoon whilst I was out walking. I was just going to post a similar question but thought I'd catch up on unread threads first!


Will this restriction still apply under the new proposals or is the intention to relax or remove it? I haven't been able to find an answer so far reading the budget documents.

I've still not managed to find any further info. I think this is an important question that will affect many people so I'm going to start a new thread.

obiewahn

I have been getting emails from a group calling itself 'The Right Side' seemingly trying to sell me a subscription to a magazine called 'MoneyWeek' by a long winded (scare) story about the pension change. The gist of it seems to be that the change has been made to allow George Osborne city mates to get there money out of the pension pot before he makes a money grab by introducing punitive taxes on pensions and pension funds in a couple years time in order to pay off the national debt. They give examples of this having happened in Greece and Cyprus etc.
Just wondered how much credence people thought should be given to this?

Contributor

The pension overhaul was long overdue, so yes ‘Good News’. At least the reforms should end the patronising attitude that ‘Providers’ have taken with ‘Stakeholders/Investors’ –although my own provider has been very transparent as to what my options are –they are and have been for sometime quite clear as to my options; buy annuity or drawdown and can go open market – no complaints there. As to ‘rushing out’ to buy a Lamborghini – well that really is a non-starter. I can’t see many wanting/being able to do that! If your ‘pot’ is small (in the £10’s ofthousands) you won’t be buying many big ticket items – more likely to clear some debts/part mortgage clear down etc. The fact that for smaller pots you don’t have to buy an annuity is a positive step. £18,000 now increasing to £30,000 provides greater flexibility for many. (25% tax free and the residue at 20% taxed – no longer 55% taxed!). Does this come in from 27th March-14 or from April 2015? I haven’t checked the detail on this as this does not impact my pension position. As for income drawdown – this has been available for sometime for those with ‘pots’ of a particular value. For those now considering income drawdown, consideration has to be given to charges.(Fund charges, Management charges for income drawdown and intermediary charges(advice)). For those previously considering an annuity, it’s often advised that fund distributions with pension provider are transferred into 100% cash, and close to the time that the annuity is to be taken. This ensures that expectations for the annuity are met (who ever provides it) and on the basis that the fund value should remain stable, although no real opportunity for growth unlike fund allocations in equities, guilts, bonds, property etc but with all the ensuing risks (investor’s ‘risk profile’ should have determined previous pension fund allocations). Capped income drawdown still limited, but to less than £12K of ‘other income’ (previously £20K). For many this opportunity to flexibly drawdown from a defined contribution scheme with reduced ‘other income’ threshold allows topping up of other pensions (defined benefit (final salary) and state pension) – a little bit more control on how you manage your money! Also capped drawdown now increasing to 150% of an equivalent annuity (previously 120%) – I would suggest that if this level of drawdown is taken from the onset, then funds will be quickly depleted or lead to much reduced income in latter years! (Unless invested within a higher risk profile – need the growth to keep up! – but there are risks with this strategy). PROFESSIONAL ADVICE REQUIRED. Finally, for larger pots (many of 100’s of thousands) – again I can’t imagine many will be raiding in one go – still prohibitive tax regime.Yes the 55% has/will end – but many will be ‘sensible’, hence the initiative for this pension reform. A large pot of say £400K will provide £100K tax free but taking the balance in one further lump sum will see all the tax rates apply– in round figures from 14-15 year, the £300K balance taxed at £10K tax free,the next circa £32K at 20%, from circa £42K to £100K at 40% and then from £100K to £120K (I’m assuming as per PAYE) you loose your personal allowance (£1 for every £2 earned) until its gone by £120K ( i.e. marginal rate is 60% for this £20K (£100K to £120K) then back to 40% from £120K to £150K – balance above £150K at 45% !!!

Doing rough tax calculation, the balance £300K would have a tax take of circa £121K – you’d get £179K – only? And that’s for the rest of your life! – wouldn’t want to do that – although I think you’d be able to buy that Lambo – checked their website – prices weren’t shown – if you have to ask the price you can’t afford it – as the saying goes. Enough said. For information I’m approaching ‘that’ retirement age range – I have a ‘pot’ grown over many years through DC scheme –not taking a pension yet – thought I knew what I was going to do ( I have a Financial Advisor – for many years) but now having to sit down with said advisor to reappraise my situation. Also made redundant end of last year (no short term cash flow issues, thankfully/luckily) – but my comments are made in the light of a very real situation. I should add that my comments are based on my own interpretations and professional advice should be taken for individuals’ personal circumstances. Reference should also be made to the Official Copy of the Budget Report – March2014 as laid before the House of Commons by the Chancellor of the Exchequer when opening the Budget. Loads of information here and obviously goes beyond media highlights which are often ambiguous.

atush

still needs more spaces

MadMat

How long is it likely to take for these changes to actually be confirmed in law?

I'm currently saving for retirement in a S/S ISA, but these new plans would make a pension much more attractive to me (i'm self employed so no employer contributions) and have plans for retirement that will almost certainly need me to be able to release more than 25% of my pot as cash at age 55.

Mat

Flachau

Anyone thinking these changes are as straightforward as the media reporting suggested should read the Chancellor's speech and the policy document on the HMRC website. The changes do not give everyone access to their funds. The rules are merely being tweaked. In order to access pots under flexible drawdown you will still need other pension income of £12000 or more. Your spouse's pension income can't be taken into account when assessing this. So unless I am mistaken only those people with relatively small pots or those with another pension giving you £12000 per annum can have the flexibility that has been publicised. Doesn't help me!!

atush

MadMat wrote: »

How long is it likely to take for these changes to actually be confirmed in law?

I'm currently saving for retirement in a S/S ISA, but these new plans would make a pension much more attractive to me (i'm self employed so no employer contributions) and have plans for retirement that will almost certainly need me to be able to release more than 25% of my pot as cash at age 55.

Mat

April 2015

gadgetmind

Flachau wrote: »

So unless I am mistaken only those people with relatively small pots or those with another pension giving you £12000 per annum can have the flexibility that has been publicised. Doesn't help me!!

Initially, yes, there are just tweaks to MIR, triviality, GAD boost, and stranded pots. The large changes, which you will have heard about in the speech and read about in the consultation document, are coming in April 2015.

Or at least they will be if the "grown adults can't be trusted with their own money!" brigade don't mess things up.

Deneb

Flachau wrote: »

So unless I am mistaken only those people with relatively small pots or those with another pension giving you £12000 per annum can have the flexibility that has been publicised. Doesn't help me!!

I believe you are mistaken. The minimum income requirement for flexible drawdown has been reduced to £12,000 with immediate effect, as a transitional arrangement intended to be in place until April 2015, when the government intends to remove the minimum income restriction completely. The second step will require legislation following the consultation process, which is why it cannot be enacted straight away, hence the interim measures.


See paragraph 1.11 of The HM Treasury document, "Freedom and Choice in Pensions".