2015 – A big year for pensions…
The Chancellor’s Budget statement usually holds few surprises, with the headline initiatives being “leaked” weeks or even months beforehand. That said, the 2014 Budget did not stick to the usual formula: in March this year, George Osborne announced the most radical reform of pensions in the last eight years.
Key themes of the proposed legislation, which will not come fully into force until April 2015, include a removal of the restrictions on how people can access their pensions. From April 2015, pensioners will have the choice as to how they fund their retirement; be that via the traditional annuity for life route, drawing down on their pension gradually over time or taking all their pension savings out as a lump sum. There will also be measures to increase the freedom pensioners have to pass on their pensions to others, tax efficiently, on death.
In the meantime, the Chancellor has already relaxed some of the current rules, including:
- Reducing the amount of guaranteed income people need in retirement to access their savings flexibly (from £20,000 to £12,000).
- Increasing the amount of total pension savings that can be taken as a lump sum (from £18,000 to £30,000).
- Increasing the capped drawdown withdrawal limit (from 120% to 150% of the equivalent annuity).
- Increasing the maximum size of a small pension pot which can be taken as a lump sum, regardless of total pension wealth (from £2,000 to £10,000) and increasing the number of pots that can be taken under these rules (from two to three).
Already the media is focusing on the aftermath – what will happen next year when pension freedom arrives? Recent research suggests that over 200,000 people will take advantage of the new rules when they come in; with most planning to save it, others to spend it and many just grateful for the flexibility to help their families or to pay off debts. Whilst some will no doubt take the opportunity to “blow it”, those that have prudently saved over many years are unlikely to adopt the same approach.
What most agree on is that your pension and how you take it can often be the most complex part of your financial planning affairs. The need for Independent Financial Advice has never been more apparent. At the end of the day, your pension fund has to last you your lifetime.
For more advice on pensions contact one of our Financial Planning Consultants on 01772 821021.