1. Pension Reforms
Recent changes to personal pensions and self invested personal pensions
(SIPPs) on retirement have received significant coverage in the media. Beyond
the headline-grabbing talk of buying a Lamborghini, what pension flexibility
have the changes introduced?
The new flexibility comes in two phases.
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Phase One - Changes to The
Existing Pension Options
For the current tax year under capped
drawdown, the maximum income you
can take from a pensions drawdown
arrangement is 150% of HMRC’s income
limit – a limit dependent on your age.
This is a 50% increase on the limit in the
2013/14 tax year.
Flexible drawdown, which allows an
income of any amount to be drawn from
a personal pension, is now available to
anyone with income of at least £12,000
pa - reduced from £20,000 pa. As before,
this secure income must come from
specific sources – such as state pensions,
annuities and final salary arrangements.
Phase Two – Introduction of a
New Option
The changes from 6 April 2015 effectively
remove income limits on everyone.
Provided personal pension/SIPP investors
have reached 55, they can draw whatever
income they like. When tax-free cash is
drawn, the applicable income pot can
either be taken too or can remain in
drawdown.
There are a number of points to be
aware of:
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free cash, the income from the
pensions plan is taxed at your highest
marginal rate of income tax. If you
draw more than the tax-free cash out
of the pension at any one time, it is
likely that you will pay a higher rate
of “Emergency Tax” on the taxable
amount. Consequently an incorrect
level of tax could be deducted and will
then have to be adjusted up or down
by HMRC through self-assessment.
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annual pensions contribution limit
on which you receive tax relief will
be reduced from the current £40,000
level to a maximum of £10,000 if i)
you draw an income directly from
your pension through the new rules,
or ii) convert existing drawdown
arrangements to the new drawdown
pension to access unlimited income.
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Pension savers will be liable for a £300
penalty if they take cash from their
pot and then fail to track down every
single one of their other ‘orphan’
pension pots within 31 days. They
must also send details to their scheme
administrators/insurers as fines accrue
at £60 a day after this.
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pension access is not available where
i) a pension sum is assigned after
divorce and ii) where tax-free cash has
already been taken from this.
This is a very brief overview of the
planned changes to accessing funds
accumulated in a pensions policy. Further
details will be forthcoming over the
next few months. Please contact your
consultant if you would like to discuss
how they impact you.
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