During the Budget Chancellor of the Exchequer George Osborne laid out plans to “completely change the tax treatment of defined contribution pensions to bring it into line with the modern world,” by legislating to remove the remaining restrictions on how and when pensioners can access their savings.
Speaking on these new measures, Mr Osborne — who claimed that over thirteen million people across the UK have defined contribution schemes — said that these measures would amount to a radical change, though they’re just a small step in the direction of a fundamental reform of the taxation of defined contribution pensions. The Chancellor was quick, however, in pointing out that these changes will not apply for defined benefit pensions, though there will be consequential implications on which the government will consult shortly.
Rejecting what he called a “patronising view that pensioners can’t be trusted with their own pension pots,” the Chancellor insisted that individuals who have worked hard and saved hard all their lives should be trusted with their own finances by default.
Proposing what he claimed to be “the most far-reaching reform to the taxation of pensions since the regime was introduced in 1921,” George Osborne introduced the following changes during Budget 2014, all of which took effect on 27 March 2014:
It’s No Longer a Requirement to Purchase an Annuity
The new measures (outlined below) make it no longer a requirement to purchase an annuity, a point the Chancellor was quick to stress several times during his speech. If you’re still attracted to the certainty of an annuity, the ability to shop around for the best available deal will be made available to you via…
Free, Impartial, Face-to-Face Advice
When you retire on defined contribution pensions you will, by law, be offered free, impartial, face-to-face advice on how to get the most from the choices you have at this time, with the Chancellor pledging to provide £20 million over the next couple of years to develop this advice offering.
Guaranteed Income for Accessing Flexible Drawdown Reduced
Reducing from £20,000 to £12,000 per annum, the amount of guaranteed income needed in retirement in order to access flexible drawdown has been almost halved.
Maximum Withdrawals Increased to 150% of an Equivalent Annuity
The maximum amount of money that can be taken out under a capped drawdown arrangement has been increased from 120 percent of an equivalent annuity to 150 percent.
Lump Sum Pension Pot Withdrawals Increased Five-Fold
Prior to 27 March 2014, pension pots of less than £2,000 could be taken as a lump sum. Now, this lump sum withdrawal limit has been increased five-fold to £10,000, while the number of pension pots any individual can access as a lump sum has been upped from two to three.
Total Lump Sum Withdrawals Increase to £30,000
To correlate with the number of pension pots you can access as a lump sum increasing from two to three, the total figure of pension savings you can take out as a lump sum has been increased from £18,000 to £30,000.
Dedicated Advice on Defined Contribution Pensions
To speak with a dedicated professional to discuss the new tax treatment of defined contribution pensions, and what it means for your savings, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.