New restriction on contributions to pensions: "£10,000 rule"

Sterlingtimes

The H&L advise sheet, states that "If you take any income from your pension ... after April 2015, you may still be able to make pension contributions, but only with a reduced allowance of £10,000 a year."

This is obviously £10,000 rather than £40,000.

H&L then quotes the exception, "If your pension is worth less than £10,000, you will be able to make withdrawals ..."

Does the word "worth" mean the capital value of the pot or the income taken?

H&L indicates that anybody with a defined contribution pension will be affected.

Does anyone know whether the rule would apply to a person taking income from a defined benefit pension? I have an £8,000 final salary pension payable at age 60. I would not wish that to preclude me from continuing to benefit from the £40,000 limit.

Your_Hero

You are right in the first part of your post. That is the annual allowance which will be reduced down to £10,000. Early indications suggest this is referring to DC pensions only, i.e. if you have crystallised the DC benefits (over £10k) then your allowance is reduced. This will also apply if you have both DC and DB pensions.

The second part of your post referring to another the £10,000 is the "small pots rule" which is something completely different.

mania112

You know, i'd missed this.

I thought it meant anyone who took more than GAD Max can only contribute up to £10k.

But its actually anyone who starts capped drawdown after 5/4/15.

Those already in DD are ok to go with the normal annual allowance, so long as they don't withdraw over the GAD max.

jamesd

The less than £10,000 bit is the small pots rule. Worth means the capital value of the pension pot, after the 25% lump sum if you've taken that. You can take up to three personal pension pots that way. It's possible to transfer pots to create three of suitable value if you want to. This can be of use if you want to add up to £22,500 to the amount you have to live on while you avoid doing drawdown to avoid triggering the £10,000 contribution restriction.

If it's an occupational pension there's a time block that bars you from taking the pot as a lump sum for three years after you transfer money out of it.

While in theory those who want to use drawdown will be affected, in practice there's a pretty high chance that it will be easy to avoid the limit, though we don't know the rules yet. The problem is to get money to live on and there are a very wide number of ways available to do that, from increasing a mortgage to 0% credit cards and on through using money from other savings and investments. The ones who I assume the Treasury would most want to block are also the ones who are most likely to have the resources for it to have no material effect on them.