Shirley Hook-Pattison
Independent Financial Planner
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The Oxfordshire Office.

The Budget - and what you need to know… part two
May 26, 2014

Changes coming from April 2015 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 two of a three part series. 

Access to Pension Funds as a single/numerous lump sum

What this means:  The chancellor has detailed that each individual will be able to access their pension funds as they see fit.  There will not be the limitations currently imposed.

Commentary:  There has been much commentary on this as to what this could mean.  As to how this will be delivered is still unclear and what the tax implications will be have not been clearly outlined.  We welcome the freedom of choice this provides however suggests a note of caution as any change could result in unwanted tax charges. 

55% death tax on drawdown to be cut.

What this means: The treasury propose to replace the current 55% tax on death that applies to individuals in Drawdown

Commentary: The remaining spouse should have the choice of 3 courses of action following death of the Drawdown plan holder

  1. Take a drawdown in their own name and age
  2. Purchase an annuity in their own name and age
  3. Have a return of the fund less a tax charge yet to be determined

All retirees must have access to free, face to face, impartial guidance

What this means: The Government has put aside the sum of £20m to fund the research into how this will be delivered

Commentary: Not really sure about this part of the budget as we are unclear on the definition of impartial guidance and how/who it will be delivered by and how it will be funded

Generally we welcome any increase in the availability for the general public to receive impartial guidance

Additional Pensions Considerations

Transfers of public sector defined benefit schemes to defined contribution schemes to cease

What this means: Probability that public sector employees will not be able to transfer their pension rights to take advantage of the proposed measures

Commentary: This is a means of protecting the capital purse strings against an influx pf civil service (police and teachers for instance) obtaining Cash Equivalent Transfer values and transferring them to personals schemes. If that were to be allowed it could put a huge strain on the funding of public sector pensions

Transfers of private sector defined benefit schemes to defined contribution schemes under review

What this means: This is a means of protecting the capital purse strings against an influx pf civil service (police and teachers for instance) obtaining Cash Equivalent Transfer values and transferring them to personals schemes. If that were to be allowed it could put a huge strain on the funding of public sector pensions

Commentary: Much as above, however HMRC may not be as concerned as private sector schemes may not have a serious an impact

Generally: we can see the benefits in certain cases for not allowing transfers from defined benefit (DB) schemes to personal schemes as, putting to one side the question regarding funding, defined benefit schemes have certain guarantees that are not available to personal schemes. DB scheme members may feel disadvantaged because they will, under these proposals, be unable to access capital benefits

Likelihood that retirement age for personal pensions will rise to reflect state retirement age. Suggestions seem to be looking at 10 years or 5 years below state age

What this means: The age at which pension benefits can be accessed will probably increase from age 55 – it has been suggested to age 57 from 2018 or 2028.

Commentary: If HMRC sticks to the suggestion that it will be 10 years below state retirement dates (SRD) then this doesn’t seem too punitive however reducing to 5 years below SRD could have a serious impact on the “at retirement market”. This could have the effect of raising the SRD for personal pension plans to 62 – 5 years less than 67!

Generally: People are living longer so we suppose it was only a matter of time before the minimum age to access personal pensions was increased as it has done in the past (from 50 to 55) and if HMRC sticks to 10 years below state retirement age then the impact will be minimal on an aging population.

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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