As we approach the end of the tax year and the impending changes to pension rules on April 5th, one of our advisers Tom Dean, talks us through the important points.
Access
On retirement individuals typically crystalised a 25% tax free lump sum and drew an income from the remainder (via drawdown or annuity). From April, those over age 55 will be able to access money purchase pensions in their entirety. It will be down to the individual to assess whether this is suitable, the main issues to consider will be whether they will retain enough assets to fund their income in retirement and their marginal rate of tax.
Death benefits
Before the new legislation, the most significant change to pension death benefits occurred at the point the pension was vested, that is to say moving from uncrystalised to crystalised. This has now changed and a new line has been drawn at age 75, prior to this age, regardless of whether any benefits have been taken, the fund is returned tax free to the beneficiaries.
Post age 75, the beneficiary can draw the benefits at their marginal rate of income tax.
Annual Allowances for those in Drawdown
The conventional annual allowance remains at £40,000 but there is now a new ‘money purchase annual allowance’ (MPAA) which is £10,000, the introduction of the MPAA has been deemed necessary to limit the scope for pension fund recycling.
This will apply to those already in flexible drawdown who have received a payment before 6th April 2015, those who use flexi-access drawdown after April 5th and subsequently draw income from the fund, those taking more than 25% of an uncrystallised lump sum and those in capped drawdown who exceed the maximum income limit after April 5th.
The lower annual allowance will not apply to those already in capped drawdown who do not increase their income level, neither will it apply to those entering flexi-access drawdown who only take their 25% tax free lump sum.
Pensions – so misunderstood!
Pensions and their rules can be confusing, everyone’s situation will be different and before you make any decisions about your pension you should talk to a professional. So please do talk to us if you would like to know more.
This from The Freedom and Choice in Pensions research paper survey:
“Would you like to buy a guaranteed income for life with your pension pot? YES 70%
“Would you like to buy an annuity with your pension pot? YES 17%
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