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

Tojo_Ralph

lvader wrote: »

Whatever you take out of the pot is income and normal income tax brackets apply.

So as per my prior round numbers, having already taken 25% of my pot, assuming no other income, I can take £41,000 of my pot a year (£10K tax free and £31K at 20%) until I have burned it off?

That sounds to me like a HUGE shift and a real game changer for me .

lvader

Thats how I understand it. Yes, this is a seachange in pensions.

Tojo_Ralph

If this applies to all DC pension monies received, including additional monies paid in from salary by someone upping their own contributions, this is really going to change the way people invest. Also what is to stop someone on a DB benefits plan starting a DC pension to avoid the 40% tax?

I say the latter because if a higher rate tax payer with a DB pension decided to start a private DC pension as they approached retirement using monies that would ordinarily be subject to 40% tax, they would very quickly be able to get it back at what would be an effective tax rate of 15% (based on taking 25% tax free and paying 20% tax on remainder).

mancmum

I only have the carer's allowance of 3K per year. Pension pot is 50,000 could I take 12,500 tax free. Take 10,000 tax free and then pay tax on the remaining 27500?

penrhyn

Baa

Good idea - but I think the Chancellor has a cunning way of stopping this - called the annual amount of contributions you (& employer) can invest in a pension pa (going down to £40k from April). So if you're close to retirement, your DB contributions will eat up most of this..so very little left of invest in a DC scheme! Another example of something that looks good but costs the Govt nowt

Baa

The "free face to face advice" option is interesting. Anyone want to bet how long before the first mis-selling case hits? Would MSE like to prepare the template letters now to save everyone time? Or maybe, include them in the legislation that goes through parliament...

bigadaj

There are so many implications and I really wind if they have all been cosmiderdd, probably not but it's a good budget for the Tories a year before an election so longer term problems can be considered years down the line.

The other thing this does is make salary sacrifice very useful, deferring and then not paying NI for standard rate taxpayers could be a useful additional carrot.

Zelazny

Baa wrote: »

Good idea - but I think the Chancellor has a cunning way of stopping this - called the annual amount of contributions you (& employer) can invest in a pension pa (going down to £40k from April). So if you're close to retirement, your DB contributions will eat up most of this..so very little left of invest in a DC scheme! Another example of something that looks good but costs the Govt nowt

Average salary in the UK is around £25k (and yes, I know it's generally a lot more in London - see below), so the £40k limit won't even come close to affecting most people.

Consider someone on £50k. With a very good final salary scheme (1/60ths) and some existing service, with pay rising at 5% per year and inflation (CPI) at 2.5%, the calculated Pension Input Amount (PIA) is as follows:

With 0 years service, the PIA is £14,000
With 5 years service, the PIA is £15,667
With 10 years service, the PIA is £17,333
With 15 years service, the PIA is £19,000
With 20 years service, the PIA is £20,667
With 30 years service, the PIA is £24,000
With 40 years service, the PIA is £27,333

You need to be on more than £73k before you can't invest in a DC scheme if you have 40 years service, and more than £142k if it's your first year.

stray_dog

Could someone please try to answer this about the new pension rules. I currently have a pension pot with Scottish Widows worth around £165000. When I reach 55 would it then be possible to take 25% tax free and then continue to pay into it?