Shirley Hook-Pattison
Independent Financial Planner
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The Oxfordshire Office.

The Budget - and what you need to know… part one
May 6, 2014

Changes coming from March 2014 and what it means to you.

Following the recent budget announcement in March, we have summarised some of the changes and what they mean to you.  Part one of a three part series. 

Capped Drawdown limits raised from 120% GAD to 150% GAD

What this means: The amount that can be withdrawn under Drawdown rules is raise from 120% of GAD to 150% GAD. This should enable people in Drawdown contracts to receive a higher level of income roughly equivalent to half as much again as a standard annuity.

Commentary:  Despite thinking to the contrary people with pension income have always had the choice not to take an annuity at retirement. One such plan is Drawdown where the capital remains invested and an “income” is drawn down. The level of that income is determined by the Government Actuaries Department (GAD) and could be set between 0% and 120%. This level is set for 3 years for those who are under 75 and reviewed annually once over 75. It may not be possible to increase the GAD level before the next review date however there are methods of rebasing the date – one of which is to make a small, one off contribution. Taking the new maximum GAD levels could, coupled with poor investment returns,

Flexible income minimum income lowered from £20,000 to £12,000 per annum

What this means: People now only need to have a fixed income in retirement of £12,000 per annum to access 100% of other pension capital

Commentary:  To enable capital to be accessed from pension funds the policy owner needs to have a fixed income currently set at £20,000 this can be from private or other personal pension incomes. This level has now been decreased to £12,000 per annum before up to 100% of capital can be accessed from other personal pension schemes

Currently the individual needs to be aged 60. Any capital accessed will be subject to income tax however 25% of the fund value should be able to paid tax free. Careful planning therefore is needed that may including spreading the withdrawals over a number of years to avoid higher rate income tax

 

Pension Triviality raised from £18,000 to £30,000

What this means: People now can access 100% of capital from a pension provided the fund value from all pensions is less than £30,000 rather than £18,000

Commentary: If a person has fairly modest capital in pension plans 100% of the capital can be accessed

Currently the individual needs to be aged 60. Any capital accessed will be subject to income tax however 25% of the fund value should be able to paid tax free. Careful planning therefore is needed that may including spreading the withdrawals over a number of years to avoid higher rate income tax

Small pots limits raised from £2,000 to £10,000 maximum 3, still age 60 attained

What this means: A person may now have up to 3 pension plans with a maximum of £10,000 in each rather than £2,000

Commentary: If a person has fairly modest capital in pension plans 100% of the capital can be accessed

Currently the individual needs to be aged 60. Any capital accessed will be subject to income tax however 25% of the fund value should be able to paid tax free. Careful planning therefore is needed that may including spreading the withdrawals over a number of years to avoid higher rate income tax

Generally: We welcome the freedom of choice this provides to investors / savers however we would suggest a note of caution prior to accessing pension funds as once it’s gone it’s gone! And a nice new Lamborghini sat in the drive is no substitute for bread on the table!

You can contact me directly on my website here http://www.bicesterifa.co.uk/contact/  or contact me directly here: 01869 247995 | 07736 105865 or via email shirley.hook-pattison@sfs-ifa.co.uk

Until next time…

 

Shirley 

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