UK Pensions – “Freedom And Choice”
By Mary Taylor, Partner, Blevins Franks
The biggest reforms to UK pensions in almost a century are underway. As more options become available, you need to understand how they affect you and consider what would work best for you in the short and long term.
The pension reform was first announced in the March budget. Some initial changes came into effect that month, but the main reform will start next April. The government launched a consultation on its proposed changes, and on 21st July released its response to the consultation, “Freedom and Choice in Pensions”.
Here is a summary of the key decisions reached under the process.
Pension freedom
The Government believes that individuals should be trusted to make their own decisions with their pension savings. From April 2015 pension scheme members aged over 55 with defined contribution schemes will be able to access them as they wish – there will be no restrictions on how much you can withdraw, you can even take the whole amount. For UK taxpayers, the first 25% will be tax free and the remainder at the individual’s marginal UK tax rate.
Expatriates need to consider the tax implications in their country of residence. In France it can be quite attractive. Lump sums from UK pension funds are taxed at 7.5% in France, and if you take your entire pension as a lump sum, the tax treatment is likely to be the same. This compares very well to UK taxation, and to the French top income tax rate of 45%. If you have Form S1 you also escape social charges.
It will be a statutory requirement for such transfers to have been advised by a professional financial adviser who is independent of the scheme and authorised by the UK Financial Conduct Authority (FCA).
Other changes
Currently, a 55% death benefit tax charge is levied on pensions that remain invested when the holder dies. The government has now announced it will cut this charge, with a new rate to be announced in the Autumn Statement. It appears that the ‘death rate charge’ will not be replaced with an inheritance tax charge.
Legislation will be introduced to enable product providers to introduce more flexible annuities, for example annuities that allow reducing payments and one off withdrawals.
The minimum pension age will increase from 55 to 57 in 2018 and thereafter it will be 10 years below the state pension age. This will not apply to certain public sector schemes such as the armed forces, police and firefighters.
For those aged over 55 after April 2015 and still in employment, annual pension tax relief will be limited to £10,000 for further contributions where benefits in a defined contribution scheme have been drawn.
A free ‘Guidance Guarantee’ will be provided to members on the features and considerations of the new pension choices.
The government recognises that the changes to the pension tax rules will have implications for the rules relating to Qualifying Recognised Overseas Pension Schemes (QROPS). It will consider these implications further to ensure that the rules relating to QROPS are appropriate when the new system comes into force.
There was no news on the suggested removal of, or change to, the lifetime allowance.
These pension reforms are very welcome, but it is essential that you understand how all the options work for you and weigh up what would be most beneficial for your circumstances and aims. The tax element, both in the UK and here in France, plays an important part. Specialist advice is important to make sure you get it right.
Contact your local Blevins Franks Partner Mary Taylor for more information on your pension options and the tax consequences, as well as on the various tax reforms in France including the latest news on Assurance Vie.
Mary Taylor TEL 05 62 30 51 40 EMAIL mary.taylor@blevinsfranks.com
To keep in touch with the latest developments in the offshore world, check out the latest news on our website www.blevinsfranks.com
Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should take personalised advice.
Blevins Franks Financial Management Limited is authorised and regulated by the Financial Conduct Authority in the UK, reference number 179731. Where advice is provided overseas, via the Insurance Mediation Directive from Malta, the regulatory system differs in some respects from that of the UK. Blevins Franks Tax Limited provides taxation advice; its advisers are fully qualified tax specialists.
