More pension changes - bad news?

dunstonh

I will bet this turns into yet another mis-selling scam.
Dodgy guy I know at football with no financial training or expertise is right now setting up a new business whereby he will visit people in order to persuade them to 'invest' their pension withdrawals into unregulated 'investments' such as one right now he is involved in - a Caribbean off-plan property development as ever supposedly bank guaranteed and backed by a billionaire (they always are) whereby people will part with large sums up front and the place may never get built.

What you describe is already happening. I have reported two for financial crime this year already. Quite a lot of posts appear in this section as well. The FCA has only gone as far as issuing a consumer warning saying people should not act on these cold call "free pension reviews" but it it actively looking at these as they get reported. However, by the time they get round to doing something, it will be too late and there will be a phoenixed unregulated firm doing the same thing

Mark my words on this, I was an early canary in the coal mine on PPI mis-selling long before anyone knew what the heck I was on about.

The difference here is that the unregulated sales leave little or no consumer protection as they usually do not involve a regulated individual. PPI fell under regulation and that is why the consumer protection exists.

mania112

Clifford_Pope wrote: »

At present if you take 25% of a pot or part of a pot tax free, the remaining 75% becomes crystalised. Any growth in the crystalised part becomes crystalised too - you can't have a further 25% bite from it.

But if the concept of crystalisation is abolished then there would be no distinction between remaining crystalised and uncrystalised funds, so if the fund grew, apparently the additional money could generate further 25% withdrawals.
In an extreme case, if the pot grew at 25% pa then one could draw 25% pa tax free indefinitely and the pot would stay the same size. It could actually happen with windfall property revaluation. So surely there must be some small print somewhere to stop that?

There's a different slant in the report in today's Telegraph. - "The first 25% withdrawn will not be taxed". 25% of what - that particular tranch, or of the whole fund?

Come again? If you take a £1 out via UFPLS, you've got £0 left. No extra growth (versus a crystallised pot) can occur.

The only difference I see between UFPLS and Phased Drawdown is that your annual allowance is different (£10k and £40k).

wotsthat

Has there been any update to the rules on the recycling of the 25% tax free lump sum? If the vision is that in the future people in retirement will run their pension pots like a bank account it might be easier to inadvertently fall foul of the current rules.

System

mania112 wrote: »

Come again? If you take a £1 out via UFPLS, you've got £0 left. No extra growth (versus a crystallised pot) can occur.
.

If you take £1 out of a £4 pot it would be tax free under current rules. The remaining £3 could continue to grow inside the pension, but whatever growth it achieved it would all be crystalised - you couldn't take a further 25% slice.

But if you took £1 out under the new rules it would, apparently, not have the effect of crystalising the remainder. So if your remaining £3 turned into say £100 by clever investing, you could take more tax-free money.out.

SallyG

Draft Bill published - [? incomprehensible?]
explanatory notes say:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/340914/Annec_C_Flexibility_15__EN.pdf

"Part 3 Pension payments out of uncrystallised funds
43. Part 3 permits the payment of a new type of authorised lump sum, an uncrystallised funds pension lump sum (UFPLS). A UFPLS can be paid on or after 6 April 2015 from uncrystallised funds under a money purchase arrangement to certain individuals aged over 55 or over. There is no limit on the amount that can be paid as a UFPLS subject to the individual having available lifetime allowance. The individual will normally be liable to income tax at their marginal rate on 75% of the UFPLS, with the remaining 25% paid tax-free (the tax-free element replaces the individual being able to receive a tax-free pension commencement lump sum with a taxed payment). Individuals who meet the conditions to have a UFLPS can, if they wish, access as much of their money purchase pension savings as they want, without having first to designate the funds as available for drawdown."

redbuzzard

Clifford_Pope wrote: »

If you take £1 out of a £4 pot it would be tax free under current rules. The remaining £3 could continue to grow inside the pension, but whatever growth it achieved it would all be crystalised - you couldn't take a further 25% slice.

But if you took £1 out under the new rules it would, apparently, not have the effect of crystalising the remainder. So if your remaining £3 turned into say £100 by clever investing, you could take more tax-free money.out.

Presumably in the second case, only 25p of the initial £1 withdrawn is tax free.

SnowMan

wotsthat wrote: »

Has there been any update to the rules on the recycling of the 25% tax free lump sum? If the vision is that in the future people in retirement will run their pension pots like a bank account it might be easier to inadvertently fall foul of the current rules.

Worth noting the recycling limit (where it applies) is proposed to be £7,500 not £10,000 as applies at present.

http://www.moneymarketing.co.uk/news-and-analysis/pensions/govt-cuts-tax-free-cash-recycling-limit-to-7500/2015276.article

zagfles

redbuzzard wrote: »

Presumably in the second case, only 25p of the initial £1 withdrawn is tax free.

Exactly. You can do exactly the same with phased drawdown, put £1 onto phased drawdown, draw the 25p tax free and pay tax on the remaining 75p. The remaining £3 is uncrystallised.

coyrls

I guess as the UFPLS scheme leaves the remainder of the fund as uncrystalised, the Life Time Allowance will be assessed at each withdrawal (as a % of the LTA in force at the time of the withdrawal). If this is the case, over a long period funds that at the start of the process are well below the LTA could end up breaching the LTA with investment growth over the withdrawal period. By contrast with draw down the LTA will be assessed at crystalisation and any subsequent growth would not breach the LTA.