MSE News: Over-55s get green light to use their pension like a bank account

greenglide

zagfles wrote: »

Have the press misreported this? A lot of people seem to be making the same mistake, that the "UCFPLS" replaces the normal drawdown rules rather that simply being another option.

Did the press ever realise that you could partly crystallise a pot anyway! These are the same people who echo the trumpet call "you will not have to buy an annuity any more".

Selective memory?

dunstonh

zagfles wrote: »

Have the press misreported this? A lot of people seem to be making the same mistake, that the "UCFPLS" replaces the normal drawdown rules rather that simply being another option.

The same press that havent reported changes to annuities or that a number of the changes already existed.

System

If it really is to operate like a bank account then won't other people be able to make claims on it, such as creditors and local authorities for care fees?

What about means tested benefits?

Deprivation of income?

bmm78

Clifford_Pope wrote: »

If it really is to operate like a bank account then won't other people be able to make claims on it, such as creditors and local authorities for care fees?

What about means tested benefits?

Deprivation of income?

Best way to get your head around it is to pretend that Osborne never mentioned the phrase "pension bank account".

A pension is still the same tax wrapper it was previously. The rule changes deal with how sums may be taken from pensions, and what happens on death.

Everything else is unaffected.

System

bmm78 wrote: »

A pension is still the same tax wrapper it was previously. The rule changes deal with how sums may be taken from pensions, and what happens on death.

.

That's my point. If the holder is free to take out any amount he wishes, with complete flexibilty, isn't it likely that that might be regarded as potential income to which he has access?

You can't normally escape creditors by simply chosing not to draw an entitlement - won't there be pressure to apply the same rule to pensions?

bmm78

Clifford_Pope wrote: »

That's my point. If the holder is free to take out any amount he wishes, with complete flexibilty, isn't it likely that that might be regarded as potential income to which he has access?

You can't normally escape creditors by simply chosing not to draw an entitlement - won't there be pressure to apply the same rule to pensions?

Under existing legislation people can take out whatever income they want, subject to an an annual limit for most people. It's not a new concept by any means.

Pensions in Bankruptcy is covered by the Welfare Reform and Pensions Act 1999. In the vast majority of cases, Approved Pension Schemes are excluded from the bankrupt's estate.

It would require further legislation to override this.

The caveat of course is that we have no idea what the government's long-term thinking is. I'm not actually convinced that there is much "long-term thinking" going on. Anything and everything is subject to change, but that applies equally to all areas of pensions.

Supernova

There do seem to be quite a few complications with this.

I turned 55 in January, after transferring all my pensions to a SIPP, now fully invested and showing a loss :-( I planned to take phased drawdown starting with a crystallised £60K.

I believe the new draft legislation has implications for how much you can contribute in the future (£40K down to £10K if you use the new freedoms, but not if you stick to 150% GAD under the current laws) and for the Recycling rules (1% of lifetime allowance, say £15K, down to £7,500). Perhaps I might need to go back to work at some point and contribute more.

The second reading is next Monday and if it passes does anyone know how long the committee stage typically lasts?

I'm currently left in limbo without an income :-(

Thrugelmir

bmm78 wrote: »

I'm not actually convinced that there is much "long-term thinking" going on. Anything and everything is subject to change, but that applies equally to all areas of pensions.

First change required is culture and attitude towards pensions. Anybody can see that longer term people will have to accept more personal responsibility. As there may be a requirement to bridge the gap at the end of ones working life before state pension age is reached.

buglawton

Now the first 25% of any withdrawal will be tax free, the remainder taxed at one's marginal rate.
So if you pay 40% marginal rate (e.g. you are still working), a £100 withdrawal will net £70, a £1000 withdrawal £700, etc.
If you withdraw a lot you can easily enter a 50% marginal rate so receive £600 for every £1000.
If you then go on to replace your ageing car or have an extension built with the money there's 20% VAT to pay.

Basically, if you withdraw £10,000 to fund some large purchase, the government stands to receive £4,400 or more!
Pretty horrible eh?

greenglide

Basically, if you withdraw £10,000 to fund some large purchase, the government stands to receive £4,400 or more!
Pretty horrible eh?

Nothing has really changed.

It is your choice whether to crystallise all (or part of) your pot. You can then either withdraw the whole amount just crystallised with 25% tax free and the rest taxed or you can just take the 25% tax free and leave the rest crystallised or any situation in between.

So what, exactly, is "horrible"?