Pension changes coming soon

Since the original announcement by the Government part way through last year that access to private pensions was to be made more flexible, things have progressed at a rapid pace.

A new flexible regime for the accessing of pensions with effect from 6 April 2015 is now in place but the practical effects are already with us. Broadly, under the scheme individuals will have a complete choice as to what action to take in regard to accessing personal pension funds. Existing options to take annuities or enter drawdown arrangements are retained but, in addition, an individual is able to withdraw all their pension funds subject to paying tax on any amounts which did not represent a pension commencement lump sum.

Having just returned from the annual meeting with my financial adviser, it has become clear to me both how fundamental but, also, how complicated the options are. The tax side is pretty similar to what went before, namely the possibility of a 25% tax free lump sum and then other withdrawals taxed as pension income.

One thing to note is that, for many clients, once their pension monies are accessed, their annual allowance will be reduced to only £10,000 p.a. with no carry forward available.

In non-tax terms the changes are huge but broadly the changes will:

• allow all of the funds in a money purchase arrangement to be taken as an authorised taxed lump sum, removing the higher unauthorised payment tax charges;

• increase the flexibility of the income drawdown rules by removing the maximum 'cap' on withdrawal and minimum income requirements for all new drawdown funds from 6 April 2015;

• enable those with 'capped' drawdown to convert to a new drawdown fund;

• enable pension schemes to make payments directly from pension savings with 25% taken tax-free (instead of a tax-free lump sum);

• introduce a limited right for scheme trustees and managers to override their scheme's rules to pay flexible pensions from money purchase pension savings;

• remove restrictions on lifetime annuity payments;

• ensure that individuals do not exploit the new system to gain unintended tax advantages by introducing a reduced annual allowance (AA) for money purchase savings where the individual has flexibly accessed their savings; and

• increase the maximum value and scope of trivial commutation lump sum death benefits;

• provide new information requirements to ensure that individuals who have flexibly accessed their pension savings are aware of the tax consequences of doing so;

• reduce certain tax charges that apply to death benefits; and,

• make changes to the rules for UK individuals who receive UK tax relief for contributions to non-UK pension schemes, so that the flexibilities and restrictions to relief will apply equally to them.

The moral of all of this is that many clients advice should seek detailed advice as to the implications for them, probably sooner rather than later.