Budget 2015: Pension and Annuity Changes

Pension Freedoms Confirmed

Pension freedom and choice will go ahead as expected on 6 April 2015. The new pension freedoms will allow pensions to be drawn using Flexi-Access Drawdown without any maximum limit each year.

Generally, only 25% pension fund can be drawn tax-free, with the remainder taxed at an individual’s marginal rate of income tax, as an alternative to annuity purchase. In addition, pensions may be passed on death potentially tax-free to beneficiaries.

‘Get Out’ of Annuities

Existing annuity clients may be able to sell their annuity from 2016/17, but crucially only if permitted by their annuity provider. The cash proceeds of sale from the annuity can then either be held within a pension for flexible and tax-efficient access, used to buy a flexible annuity, or drawn as a taxable lump sum. The details of how this will work are subject to consultation, as is whether this new flexibility will be extended to pensioners locked into final salary pensions.

Pension Lifetime Allowance Cut

Pension Lifetime Allowance (LTA) to be cut to £1m from April 2016 from the current £1.25m. Only a few years ago, the pension LTA was £1.8m, so this is a very significant restriction on pension savings, although the government claimed it would only affect 4% pension savers. It is proposed that the LTA will be indexed by CPI inflation from 2018/19 to help maintain its real value in future. There will be new transitional protection to enable pension savers above the £1m LTA to secure a higher allowance.

Pension Annual Allowance Unchanged

Pension Annual Allowance of £40,000 left unchanged. Our view is that this year’s allowance should be utilised at the earliest opportunity in case future governments restrict the Annual Allowance further (it was £50,000 until last year) and make use of carry forward opportunities from the last 3 years, where affordable and income is sufficient to obtain tax relief on pension contributions.

Please note, this article is for information only and does not constitute investment advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise; pension rules and tax legislation are subject to change; we do not give tax advice. If you would like investment or pension advice on your individual circumstances, please do not hesitate to get in touch on 01392 875500 or info@SeabrookClark.co.uk

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