Changes in the pensions world

It has certainly been a momentous year in the pensions world. The March budget set the ball rolling with changes to flexibility and how retirement funds will be accessed and is probably the biggest shake up in the last 25 years.

So how could the changes potentially affect you going forward?

Those with relatively modest retirement pots (less than £10,000 and no more than £30,000) will be able to access the funds in full and the age at which you are able to access them will be reduced from 60 to 55. There may still be tax implications though, so care is required.

For larger retirement funds, access in full is available from April 2015 onwards. 25% of the fund will remain tax free with the balance taxed at the member’s marginal rate of tax, whereas previously a guaranteed retirement income of £20,000 (now £12,000) was required to be able to take the fund as lump sum.   

The government also recently announced a significant shift in how pension death benefits will be payable.

Prior to the March budget, up to age 75 those with benefits held within a defined contribution plan (such as a personal pension, stakeholder pension or similar) could generally pass the benefits to nominated beneficiaries completely free of taxation, whereas a tax charge of up to 55% applied for those who had started to access/drawdown benefits. Going forward, the government has elected to scrap these rules and from April 2015 onwards, those aged 75 or below, irrespective of whether they have accessed their retirement pots, will be able to pass death benefits to their beneficiaries tax free in most cases.

Post age 75, beneficiaries should be able to receive benefits subject to their own personal marginal rates and transitional rules will be put in place for these cases.

The sudden attractiveness of defined contribution pension schemes has led the government to announce that they plan to ban the transfer out of government funded pension schemes, such as those offered to employees within local authorities, the NHS, state education and the civil service, although transfer away from privately funded final salary schemes will remain possible.

As part of the changes the government also announced relaxation to how annuities can be structured and the maximum ten year guarantee rule will be removed.

So given these changes what should you be looking out for and what are some of the pitfalls?

Those with relatives who were recently deceased and held substantial pension pots should take advice immediately. By deferring taking benefits until after April 2015 they could potentially access the funds tax free, rather than incurring a 55% tax charge.

For some, the temptation to access their pension funds in full may never be greater, so great care should be taken if you now feel the need to draw down your retirement pot in its entirety. With average life expectancy now in the eighties, exhausting your pension fund early with no funds to live on later in life is not going to be much fun.

Drawing down funds in full may also lead to unnecessary taxation, as benefits beyond the 25% tax free lump sum will be taxed at the individual’s marginal rate, although to counter this, funds can be rebuilt to some degree with the new £10,000 per annum contribution limit from 2015.

Sceptics might suggest that this all points to the death of the annuity and it is a quick way of boosting the Treasury’s coffers, but what is clear is that more than ever before it is vital that those considering making changes to their pension arrangements, or simply looking to access funds should seek independent financial advice.

Neil Davis, Financial Planning Consultant

If you like this article and would like our FREE updates sent straight to your inbox then subscribe to our monthly newsletter


Get in touch

To find out more about how we can help you or your business, call us on 0808 144 5575 and speak to a member of our team. Alternatively use our contact form to send us a message or arrange a callback.

CALL 0808 144 5575


Contact Us

All content © 2015 Armstrong Watson. All Rights Reserved. Website by Simon Pighills.

Armstrong Watson LLP is a limited liability partnership registered in England and Wales, number OC415608. The registered office is 15 Victoria Place, Carlisle, CA1 1EW where a list of members is kept. Armstrong Watson LLP is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. Unless otherwise indicated, either expressly or by the context, we use the word “partner” to describe a member of Armstrong Watson LLP or an employee of Armstrong Watson LLP in their capacity as such.

Armstrong Watson Audit Limited is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Registered as a limited company in England and Wales, number 8800970. The registered office is 15 Victoria Place, Carlisle, CA1 1EW.

Armstrong Watson Financial Planning Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 542122. Registered as a limited company in England and Wales, number 7208672. The registered office is 15 Victoria Place, Carlisle, CA1 1EW. Armstrong Watson Financial Planning & Wealth Management is a trading style of Armstrong Watson Financial Planning Limited.

Armstrong Watson Trustees Limited is a limited company registered in England and Wales, number 84495656. The registered office is 15 Victoria Place, Carlisle, CA1 1EW.