The UK Budget And Pension Reform
By Mary Taylor, Partner, Blevins Franks
The UK Chancellor of the Exchequer, George Osborne delivered his Budget to Parliament on 19th March. By far the biggest surprise was the announcement of a complete overhaul to the pension regime.
Several measures were introduced in one of the largest reforms of the defined contribution pension system since 1921. The government decided that the existing pension regime perpetuated an unjust system for taxpayers who have “done the right thing” and saved all their lives. Pension holders are now being granted a far wider range of access to their funds after retirement.
The following changes came into effect on 27th March 2014:
- A reduction in the minimum income requirement for accessing flexible drawdown from £20,000 to £12,000.
- An increase in the capped drawdown limit from 120% to 150% of equivalent annuity.
- An increase in the total pension wealth people can have before they are no longer entitled to receive lump sums under trivial commutation rules from £18,000 to £30,000.
- An increase to the small pension pots lump sum limit from £2,000 to £10,000, and the number of pots that can be taken as a lump sum increased to three.
A key change will come into effect from 6th April 2015. Members of defined contribution schemes will have much more flexibility in how they deal with their pension on retirement. The requirement to buy an annuity has already been removed and the 25% tax free lump sum will continue to be available, but from 6th April 2015 retirees will have three choices for the balance of their pension:
- Withdraw their entire pension fund on retirement, with the withdrawal to be taxed at their marginal income tax rates, rather than 55% as currently the case.
- Purchase an annuity.
- Flexible drawdown benefits over time.
Remember, it is essential that you consider local tax in France.
A consultation has been launched regarding transferring out of public and private Defined Benefit Schemes into Defined Contributions Schemes.
Consideration will be given to allowing individuals aged 75 and over to claim tax relief on pension contributions.
The Government will also consult on increasing the minimum pension age so that it remains ten years below state pension age.
HM Revenue & Customs has been given new powers to help prevent pension liberation schemes being registered, and to make it easier to de-register such schemes. This measure is designed to catch schemes which allow members to access their pension fund before reaching retirement, which HMRC views as pension fraud.
This is just a summary. It is important to seek specialist, personalised advice to clarify how you are affected.
Mary Taylor : 05 62 30 51 40