Pensions are changing, again!

29th October 2014

Earlier this year the Chancellor’s Budget announcement of a radical reform of pensions surprised nearly all the pension experts. The reforms provide more choice, however this increase in choice brings with it a significant increase in complexity (the explanatory notes run to 60 pages!).

The Taxation of Pensions Bill

On 14th October 2014 the government published the Taxation of Pensions Bill, which will change the tax rules to allow individuals aged 55 and above to access their defined contribution pension as they wish from April next year.

Chancellor of the Exchequer George Osborne said:

“People who have worked hard and saved all their lives should be free to choose what they do with their money, and that freedom is central to our long term economic plan. From next year they’ll be able to access as much or as little of their defined contribution pension as they want and pass on their hard-earned pensions to their families tax free.”

From April 2015 the proposed benefits available from a money purchase arrangement will be:

  • A Lifetime Annuity, although some of the current restrictions on Lifetime Annuities will be removed, they will still have to be paid for life and at intervals of 12 months or less, but:
    • There will be a more widespread facility to reduce an Annuity in payment;
    • The requirement that the member must be offered the Open Market Option is withdrawn (but may be offered);
    • The 10-year limit on Guaranteed payment periods is scrapped (so the Guarantee may be of any length).
  • Capped Drawdown
  • Flexi access Drawdown
  • Short-term Annuity – as now, an Annuity purchased by a Drawdown fund for a period of up to 5 years;
  • An Uncrystallised Funds Pension Lump Sum – originally shortened to UFPLS which has since morphed into the rather delightful acronym FLUMPS
  • A Scheme Pension
  • A Pension Commencement Lump Sum (available with the Lifetime Annuity, Drawdown or Scheme Pension).

If you are contributing to, or have accumulated pension savings in, one or more “defined contribution” arrangements (i.e. pretty much any pension arrangement other than a company final salary scheme) then these reforms will probably affect you, so now is the time to start planning.

Please contact us if you would like to discuss whether and how we can help you.