Latest pension rule changes

Legacy_user

From a Suffolk Life bulletin explaining the new rules:

Dying under age 75:
"The Statement proposes that a lump sum can be paid tax-free to a nominated beneficiary, regardless of whether crystallisation has occurred. If the beneficiary chooses to receive income instead of a lump sum will be able to make tax-free withdrawals as and when they need it."


Does this really mean what it says - a widow of someone dying before age 75 will be able to take a tax-free drawdown income for life?


Another question; everyone assumes a "beneficiary" is an individual. But a pension lump sum can be paid into a trust - is it proposed that the same revised tax rules would apply?

Your_Hero

Clifford_Pope wrote: »

From a Suffolk Life bulletin explaining the new rules:

Dying under age 75:
"The Statement proposes that a lump sum can be paid tax-free to a nominated beneficiary, regardless of whether crystallisation has occurred. If the beneficiary chooses to receive income instead of a lump sum will be able to make tax-free withdrawals as and when they need it."

Does this really mean what it says - a widow of someone dying before age 75 will be able to take a tax-free drawdown income for life?

This is the latest development I've also heard but pay little attention to it until nearer the time because it's all about the finer details.

Another question; everyone assumes a "beneficiary" is an individual. But a pension lump sum can be paid into a trust - is it proposed that the same revised tax rules would apply?

Trusts have their own tax rules.

System

Your_Hero wrote: »

This is the latest development I've also heard but pay little attention to it until nearer the time because it's all about the finer details.

.

The pension companies seem to have jumped on it and assumed this is true.

SippTechie

To be fair to pension companies, partly because I work for one, HM Treasury has sent lots of them a document which explicitly states that this is how the system will work.

Quoting directly from it:

"New System - Before Age 75 - Can pass on completely tax free to any beneficiary as a lump sum or as a drawdown pension"

and

"Under the new system, the 55% tax rate will no longer exist. Anyone who dies below age 75 who hasn't started their pension, or is taking a drawdown pension, will be able to give their remaining defined contribution pension to anyone as a lump sum death benefit or as flexi-access drawdown completely tax-free."

To be fair, the announcement is bookended with "Subject to final legislation and guidance" but the underlying intention is fairly clear.

System

SippTechie wrote: »

To be fair, the announcement is bookended with "Subject to final legislation and guidance" but the underlying intention is fairly clear.

So subject to that proviso, it really is true.
It's very welcome news (not that I want to benefit personally ) but I wonder what the rationale is for giving a tax-free income to a group of people who are likely to already be quite well off?

zagfles

Clifford_Pope wrote: »

So subject to that proviso, it really is true.
It's very welcome news (not that I want to benefit personally ) but I wonder what the rationale is for giving a tax-free income to a group of people who are likely to already be quite well off?

It does seem very generous - just wonder if it's an underhand way of allowing people to get round inheritance tax? The Tories wanted to raise the IHT threshold to £1million, but this is politically controversial and the Lib Dems wouldn't allow it...

Linton

The proposal seems rather strange - it's as if they were deliberating creating a loophole for wealthy people to avoid both inheritance tax and income tax. Surely not. Though I suppose it would only benefit the around 25% of the population who live long enough to work but dont reach 75. Or a smaller % as some of those would have bought annuities.

It would be a pity if pensions were driven by the desire for tax avoidance rather than the need to save for ones old age.

zagfles

I'm surprised the Lib Dems have agreed to this - surely they must have done if it's to become law. I've not seen any comment from them. Or is it something the chancellor has executive power to implement?

greenglide

It would be a pity if pensions were driven by the desire for tax avoidance rather than the need to save for ones old age.

You mean they aren't already?

ISAs, pensions etc are all tax avoidance products in some form.

Some people also use pensions as a method to fund retirement "in a tax efficient manner". Many round here just do the tax efficient bit but don't bother with the retirement bit!

zagfles

greenglide wrote: »

You mean they aren't already?

ISAs, pensions etc are all tax avoidance products in some form.

Some people also use pensions as a method to fund retirement "in a tax efficient manner". Many round here just do the tax efficient bit but don't bother with the retirement bit!

But until now a pension wasn't really much use for avoiding inheritance tax (unless you expected to die before 75).

kidmugsy

Maybe they want to encourage more money into pensions, assuming that care bills are likelier to mop it up than grateful grandchildren.

It may also eventually be deployed as an excuse for leaving the NRB alone.

Maybe they are keen to get some "good news" coverage of pensions to counteract a decade and more of bad news; Brown, Maxwell, Equitable Life, ending of many DB schemes, low annuity rates, ........