City Trustees - part of Mattioli Woods

News and Media

15 September 2014

Government announces three pension flexibility options for April 2015

HM Revenue and Customs (HMRC) has published draft guidance on clauses for the Taxation of Pensions Bill which will bring in changes to the law liberating access to savings.

With effect from 6 April 2015, individuals over age-55 will have more flexibility to accessing their pension savings, including the option to place assets into drawdown under a new type of fund called flexi-access drawdown will be able to withdraw any amount over whatever period they choose. Payments will be taxable as pension income, however there is an option to have a tax free lump sum of up to 25% when funds are put into a flexi-access drawdown arrangement.

Another option is to invest in an income for life by using their existing pension pots or a proportion to purchase a lifetime annuity.

HMRC also revealed that individuals aged 55 or over can elect to take a lump sum directly from their pension, without crystallising its fund. This will be known as uncrystallised funds pension lump sum (UCFLS). If a member elects for an UCFLS, this will then trigger the money purchase annual allowance rule. For example, if a members triggers this rule they will only be able to contribute £10,000 into their money purchase pension savings. If they exceed this limit, they will have a reduced annual allowance of £30,000 which can be paid to a defined benefit scheme. If they do not exceed the £10,000 limit their annual allowance will be £40,000, of which £10,000 can be paid to money purchase arrangements.

Ed Carey, Managing Director, notes:

"It must be remembered that it was only recently that the compulsory purchase of an annuity was removed, and we are now seeing even more flexibility, which could provide a much needed boost to a historically troubled industry.

"Whilst we are extremely excited at the prospect of the new flexibility and how this will change the pension landscape, there will be some complicated planning opportunities for IFAs unveiled over the next six months."


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