Pension Advisory Service & CAB advice on April 2015 changes

vincem101

I've heard that TPAS & CAB are giving advice to people regarding changes to how pensioners are able to take money from their defined contribution pension pots that are coming into effect soon. Does anyone have a link to their advice or a PDF of the document they use? My parents can't get down to the CAB and don't want to discuss their financials over the phone!

dunstonh

I've heard that TPAS & CAB are giving advice to people regarding changes to how pensioners are able to take money from their defined contribution pension pots that are coming into effect soon.

Not quite. They are giving generic guidance. Not advice. Much of which will be delivered by the internet or phone and documentation.

jamesd

Probably the most important single thing to know is that if they want a guaranteed for life income the cheapest and safest way to get it is to defer claiming their state pensions. If they reach state pension age that will increase the payment by 10.4% per year, about 50-60% inheritable by a spouse. If they reach SPA after that ti will increase by 5.8% per year. All pro-rated for parts of a year. These pay rates are twice what standard annuities pay and in many cases are likely to beat enhanced annuities that are available to those with reduced life expectancy.

If either will be 55 before 6 April 2015 and expects to pay more than £10,000 per year into a pension after that it's important to enter capped income drawdown before then. From that date new drawdown using flexi-access drawdown will only allow taking the 25% tax free lump sum without triggering a reduction in annual pension contribution allowance from £40k to £10k. Get capped income drawdown started before then and the limit is the 25% tax free lump sum plus in each year that GAD limit amount, which tend to be between 5% and 8% of the 75% a year at common retirement ages. Putting even part of a pension pot into capped drawdown will allow more to be added later, getting the better treatment.

One reason capped drawdown is better is that there are no limits on recycling pension income but there are some on recycling the lump sum into the person's own pot. Using the pots of spouses can work around the limitation.

So far as taking the money, the two main new options are:

1. Flexi-access drawdown. Any amount can be taken at any time from age 55. Up to 25% can be taken as a tax free lump sum and the rest is taxable income.
2. uncrystallised funds pension lump sum (UFPLS) allows taking out a lump sum with a fixed 25% tax free and 75% taxed as normal income.

In both cases HMRC under current plans would treat the taxable portion as repeating every month for a year and tax it accordingly, hugely overcharging. This can be circumvented by taking a smaller initial payment and giving time for a tax code to be issued to the pension company or by taking the lump sum as a regular income instead. for smaller pots, if the whole pot is taken, HMRC has a process to allow the overpaid tax to be reclaimed during the tax year.

If they want some description of options it's also possible to set up an account here that is completely unconnected to any other accounts and discuss things that way.

bmm78

The Pension Wise website (in development) is intended to be for people who for whatever reason are unable or unwilling to access either the Face to Face or Phone guidance sessions. If you keep an eye on the news from this site I'm sure there will be updates in the near future.

However, without wishing to run down the service before it's even off the ground, I doubt it is going to provide any information that you can't get off either the MSE site or these forums.

PensionTech

changes to how pensioners are able to take money from their defined contribution pension pots

I'd just add that your wording makes it sound like your parents have already started to draw benefits from their DC schemes. If that's the case then they may well find that the changes being introduced have little to offer them.