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Budget 2014: Osborne outlines dramatic pensions overhaul

by Jun Merrett on Mar 19, 2014 at 13:31

Budget 2014: Osborne outlines dramatic pensions overhaul

The government has unveiled dramatic pension reform targeting the annuity and drawdown regimes.

From April 2015 people will be able to access pension savings as they wish at the point of retirement, subject to their marginal rate of income tax, rather than the current 55% charge for full withdrawal.

Ahead of this reform chancellor George Osborne has introduced immediate, interim measures to make drawdown more accessible by cutting the income required for flexible drawdown from £20,000 to £12,000 and raising the Government Actuary's Department rate for capped drawdown from 120% to 150%.

He  also announced changes to the trivial commutation rules, increasing the size of the pot which can be cashed in to £10,000 from the current £2,000, and the lifetime limit from £18,000 to £30,000.

He said no one would have to buy an annuity anymore and that those who did, in a defined contribution scheme, would have access to impartial face-to-face advice.

Andy Bell, AJ Bell chief executive, welcomed the measures.

‘This is fantastic news for pension savers,’ he said. ‘Income drawdown has served us well for nearly 20 years, but it has passed its sell by date.

‘Pension savers will be able to get tax relief on pension contributions and invest it tax free until they need it.’

‘Breaking the link between how much a pension saver can take from their  own pension pot and a dysfunctional annuities market is an eminently sensible move.’

‘We are seeing the start of the end of the dysfunctional annuities market.’

66 comments so far. Why not have your say?

Gordon Sinclair

Mar 19, 2014 at 13:36

Its certainly a vote winner but what happens when pensioners have spent their pension pot?

Also - how many providers are going to continue to offer flexible drawdown - it must be very hard to make any meaningful profit?

And as to the face to face advice - will be interesting to see how the see that working.

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Jonathan Kirby

Mar 19, 2014 at 13:45

Wow - these are some of things we have been arguing for for some time and very interested to see the small print.

The cynic in me says though that if people can draw what they like from their plans, will we get the blame when it all runs out through a lack of prudence?

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IDH

Mar 19, 2014 at 13:48

And free face to face advice - this is one of the most complex areas we ever advise on , with consequences that can last 30 years or more - who takes the risk for free advice being wrong?

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IDH

Mar 19, 2014 at 13:48

And free face to face advice - this is one of the most complex areas we ever advise on , with consequences that can last 30 years or more - who takes the risk for free advice being wrong?

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Phillip H

Mar 19, 2014 at 13:55

£12k!!! Irresponsible in the extreme!!

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Hickky

Mar 19, 2014 at 13:55

Gordon, so what if they empty their pension pot at v old age. Any annuity income is taken into account when assessing LTC, so if they emptied it, the rest of us pay.

Flexible drawdown means lump sums will be taxed at marginal rate so government will benefit from the shortterm increase in tax reciepts, but it means that for those with DB and state superannuation schemes, a DC scheme can be tax feeficient now.

Clients will have a choice to go into drawdown anyway, so how many will want to take out more than they intend to spend? Leaving the money invested via insured or ordinary funds should increase as if you take it all out in a short time, where can you put the money? Not likely to put it into a deposit account and pay tax on interest, even in an ISA you would have paid income tax on taking it out, therefore these changes look to me to be about individuals taking responsability and in reality there is likely to be more residual money left invested in pension pots rather than lost to the annuity market.

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Neil Walker Mk II

Mar 19, 2014 at 13:56

Did he specify that the face-to-face advice would be free? If so I'd imagine it will be provided by the MAS, funded by advisors. So we get to pay for people to use a service that takes business away from us.

I think I'm joking...

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Len Murray1

Mar 19, 2014 at 13:58

Good idea from George. Take the state pension and put £120,000 into an annuity. If you take the rest immediately, George gets his tax, at 20 or 40%, now rather than waiting for dribbles of tax over the next 20 years.

Isn't the point of flexible drawdown that even if you're a spendthrift, you'll still have £12000 per year to live on forever?

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Hickky

Mar 19, 2014 at 14:04

Philip

So you are one who does not trust a pensioner to look after their own finances! Shame on you!

When pensioners have money in savings, do the majority just blow it all at retirement? So under the new regieme, what is different?

In fact I would describe these measures as attempting to get responsability back to the individual. We can, via regular reviews, advise on how much it would be prudent to take out every year, according to tax and individual need, rather than setting a rate for the next three years that often leads to surplus income being held in deposit accounts or shortfalls in income.

Annuities are now nearly dead in the water, £30k total will probably take PCLS and pay tax on ballance, sub 10k pots will be taken anyway and there is this advice subsidy scheme at retirement we have yet to get details on.

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Hopefull

Mar 19, 2014 at 14:13

The total amount that can be cashed in from a pension over a lifetime has been increased to £30,000.

Am I right to think this was the £18,000 triviality amount ???

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Phillip H

Mar 19, 2014 at 14:16

Hikky

As a financial adviser if I trusted pensioners to look after their own money I would be out of a job! Many many a pensioner I have discouraged from taking maximum drawdown over the years. I do not see why the vast vast majority woudl want to touch flex drawdown. If you NEED more money than the GAD max then you probably can't afford to take the risk of taking it as it won't be sustainable. If you DO NOT NEED any more than max GAD then why on earth would uyou take it from a death tax friendly environment.

Hikky, if you are an adviser an trust all your pensioners to look after their own finances then stop charging them and teaching them to suck eggs. If your are not a financial adviser then 1. one would question why you are commenting on this forum and 2. you are obviously lucky enough to have the intellect and understanding of finacial markets and products and the impact of todays decisions on tomorrow. Most people do not fall into category 2!!

"Shame on me"?! - don't be so dramatic!!

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Andy Mckay

Mar 19, 2014 at 14:17

Interesting on the additional flexibility for pensions, more options are always a good thing and I think I like the small pot / trivial changes as this will mean a lot of people with small pots will be able to do something meaningful with their pensions rather than receiving a tiny monthly income. Will be interesting to see the details.

Regarding the "right" to free face to face advice to all people at retirement. I'm sure that I read somewhere that around 650,000 a year reach age 65. So thats 12,500 free face to face meetings a week (assuming no holidays). Could be quite a challenge logistically....

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Bored at work

Mar 19, 2014 at 14:18

Anyone noticed what has happened to Just retirement and Partnerships share price. A lot of people just lost their jons maybe?

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Bored at work

Mar 19, 2014 at 14:19

Apologies - jobs not jons

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Johnsy

Mar 19, 2014 at 14:19

Have I missed something?

I thought that basically, one could take 25% of pension as TFC.

I note from article that

"The total amount that can be cashed in from a pension over a lifetime has been increased to £30,000."

Increased from what?

Also, I know there may be few of these left, but what about those people who used pensions in the hope the TFC would repay their mortgages.

?????

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Alex Morrison WM

Mar 19, 2014 at 14:23

All good news as far as I can see.

Annuities are dinosaurs and should go the same way as T-Rex et al, extinction!

The only people who still like them are life companies who make gazillions of dosh taking the money and "betting" on the death of the annuitant. And usually winning.

Anything that gives more choice is a welcome addition.

And, as advisers, we can only guide a client to take a decent enough income to have a good lifestyle, but not so large that their pot runs dry before they croak.

As a wise man once said "you can lead a horse to water but you can't make it drink". Addition to that -"If it won't drink, shoot it! Because it will die of thirst soon enough anyway". This is my mantra when guiding clients. If they won't listen to my advice, I tell them to go elsewhere and let someone else take the risk of a complaint.

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Colin Fergussion

Mar 19, 2014 at 14:36

If somebody does exhaust their income they should still have the State Pension which based on the new flat rate will be sufficient to provide basic life style. However my fear is where people go into retirement with large debts secured on their incredible income and then default, but we must be fair these are the people who will be in the media saying how unfair it is that they are losing their homes and have no money. There is just one further reform required make the pension inheritable, so sensible people have an incentive to pass on their wealth and are no penalised for their prudence or premature death.

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Dave C via mobile

Mar 19, 2014 at 14:36

My understanding was that the 30k was an increase on the current 18k Trivial Commutation rules, and the 10k was an increase to the Small Pots commutation rules, which can run in parallel.

If my understanding's correct then this could be interesting news for those with an "average" pension pot.

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Dave C via mobile

Mar 19, 2014 at 14:46

Oh, and I've just noticed that small pots can be commuted 3 times rather than twice in a lifetime.

30k + 3x10k = 60k that could be subject to the new rules?

I must be wrong about this, surely?

(Apologies for calling you....)

Definitely new material for my presentations to advisers!

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Robert Handford

Mar 19, 2014 at 14:47

@Johnsy

You're not a financial adviser are you?

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Steve

Mar 19, 2014 at 14:52

Share prices for Life Offices and specialist annuity providers have plummeted on this news.

How secure are some of the specialist annuity providers now? What happens to existing annuitants if the flow of new pension annuity monies decreases - are these offices viable? What happens if they go bust?

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Sascha K

Mar 19, 2014 at 15:08

Steve: They certainly should be, otherwise they've been run fraudulently as Ponzi schemes. The returns on long-dated gilts (or whatever else they invest in) should be sufficient to pay all their annuities even if they never get another customer ever again.

Not saying it can't happen...

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Michael Brown

Mar 19, 2014 at 15:10

So simples then.

Any pension pot worth 30K or less 25% TFC taken and the rest taxable lump sum at the persons marginal tax rate.

Those with small pots upto 3 only and they total less than £10k are paid out tax free.

Now if my guaranteed pension income from the state and other annuities or final Salary schemes totals £12k per annum I can take my TFC from any pension fund and then the rest which is liable to my highest marginal rate of tax.

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Julian Stevens

Mar 19, 2014 at 15:14

I would hope that somewhere in the small print is/will be clarification of the rate applied to the taxable element of trivial pots being commuted in their entirety for a lump sum. As things presently stand, some insurers (apparently not all, but certainly those with which I've dealt in the past) annualise the taxable element by multiplying it by 12 and then deduct at source 40% tax which, for anyone who doesn't submit a Self Assessment tax return, is all but irrecoverable.

I'm also intrigued by the statement that no one will have to buy an annuity anymore. What? Nobody, no matter how large their pension fund/s? What vehicle will they employ instead to provide their retirement income? And will the level of income allowable still be restricted by GAD rates, for it's the shackle to those that most urgently needs to be scrapped?

And, if you have a pension fund worth, say, £290,000, will it be possible to transfer it into 10 separate new policies, each worth less than £30,000, so you can commute them all? I can imagine a number of insurers investigating this as a possible tactic.

Has anything been said about the punitive 55% death tax on unspent funds in Income DrawDown or those not vested at all where the policyholder dies after age 75?

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tim santry

Mar 19, 2014 at 15:25

Look at what market thinks of Partnership Assurance's future in the brave new World PA/.LN down 48% in one hour. LGEN.LN minus 14%

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Colin Barrett

Mar 19, 2014 at 15:27

just read the consultation doc on the treasury website.

I read this as:

- rule changes for Flex drawdown (down to £12k) and max GAD for capped drawdown are an interim step while broader consultation takes place

- consultation is for full access to a DC pot, with no minimum income requirement (25% PCLS + access to whole pot at marginal rate from age 55).

That is a seismic proposal.

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Michael Brown

Mar 19, 2014 at 15:27

Julian

The insurers apparently have HMRC guidelines that state if they do not have a tax code use week one and thus the fund is taxed at the higher rate and can only be claimed back by self Assesment, stupid I know but true.

Here is an even better case for you.

Lady attains her state pension for just a week in this tax year. HMRC rules say she has had a years worth of money and as she is employed the new tax code means she will have no earnings this month!! I checked with them and they are the rules they work to. So she gets a pension of £130 and pays tax on an assumed income of £6,760. She will not get her rebate until August as well!

More news on the over 75 is awaited! although there are comments about it being the persons or recipients tax rate.

No to your 3rd question.

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Hickky

Mar 19, 2014 at 15:34

@ Phillip

If you don't explain sufficiently all the drawdown rules, I admit there are some who think it is best to empty the pot ASAP because they do not trust 'pensions'.

However, your comment saying £12k!!! Irresponsible in the extreme!!, with all the attached exclamation marks was far more dramatic to me.

So you don't trust your clients, why? Just because the very idea of drawdown does not fit into your own personal set of values? Or you dislike drawdown as you feel it gives your clients too much leaway. As I stated before, if you take an annuity at retirement you have lost the money to someone who is not much better than a bookie. If your circumstances change, the annuity can't. So relaxing the drawdown rules empowers individuals and can make it less likely to pot-empty as the increased access will allow people to look at their pension pot as just another savings or investments pot. People do not empty ISAs often, why should it be any different when allowed to take flex drawdown.. You can charge a higher on-going fee as annual reviews would be beneficial, so don't knock it.

But why should you be so nanny state about it? If someone empties their pot at say 85, spent it all and only has state pension to live on, thats their look out. You may have to point out is will happen, but how can you get blamed? Perhaps it is better to have had a better life whilst they are able to enjoy it, rather than have a load of money that you can't spend that will either go to beneficiaries with a large tax bill of 55% or 40%. I submit that decision should not be made for them by the state or you.

Mind you, I feel that the free, face to face access to independant advice George was talking about should be manditory in all drawdown cases, but someone must pay me. We will see how the £20 million will be spent.

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Michael Brown

Mar 19, 2014 at 15:35

CB

55 and not 60? At today's Annuity rate that would need a very large fund to provide!

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Roydo

Mar 19, 2014 at 15:54

Is the marginal tax rate on income/lump sums from commuted pension funds also applicable to the taxation of the fund on death?

Listening to him, that seemed to be the case. And it would be logical.

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Colin Barrett

Mar 19, 2014 at 15:56

Michael,

no minimum income requirement in the consultation document, so annuity rates no longer relevant unless you actually want to purchase one.

There is a proposal to increase the minimum pension age from 55 to 57 from 2028.

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Debbie-

Mar 19, 2014 at 16:00

Pretty sure under the rules of triviality it would be £30k from ALL pension pots?

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Steve

Mar 19, 2014 at 16:03

@ Colin B - I think that reads 2018 the minimum pension age will be 57

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Phillip H

Mar 19, 2014 at 16:16

Hikky. I thought you may pick up on my hypocrisy on the use of the word dramatic!! As I pressed "send" I thought "doh"!!

"Trust" is the possibly the wrong word (unfortunately a word introduced in your first post and continued by me) but the sentiment is the same. "Understanding" is possibly better.

Just to clarify, I think drawdown is a great flexible option (pretty sure I didn't say I "dislike drawdowm"!) and I think annuities are inflexible but right for some. I don't impose my values on clients but I do tell them when I think an income is unsutainable. The fact you mention "If you don't explain sufficiently all the drawdown rules, I admit there are some who think it is best to empty the pot ASAP because they do not trust 'pensions'", kind of proves the point. When you say "you" I do not know who you are referring to; I certainly explain the rules very well. But that is the point if people take good advice they will understand all the rules and they will understand whether an income is sustainable or nto and all the assciated benefits and drawbacks of each option.

Your comment regarding someone emptying their pot at 85 and "that's their look out" I'm afraid not only supports the argument not to take too much but also completely ignores the fact that they would then get bailed out by the rest of us. Using your argument, the £12,000 should be zero and we should just trust that everyone knows what they are doing...but then you state that "face to face access to independent advice...should be mandatory..." Why do they need advice - according to your argument they are perfectly capable of making up their own minds and you trust them to make this decision

As for the inheritance argument, are you saying that it makes more sense to have the income paid out at marginal rates (likely 40% as people can take what they want) and then get it taxed again at 40% on their death, as opposed to 55% (or less via phased drawdown). Doesn't make much sense to me. Ok you could establish gifts out of normal income etc but that would be difficult under flex drawdown.

I've just noticed you have said "but someone must pay me" which suggests you are an adviser.

Lets put this down to difference of opinion - perhaps not even that. I don't want to make a decision for a client but I think rules are important and are there to protect individuals from making poor choices. You seeem against the "nanny" state (dramatic statement/phrase no 3 possibly!!). It's ok for the nanny state to give tax relief on contributions but not to set paramters onm how those built up benefits should be used??!! You can submit that "that decision should not be made by the state or you" and you can submit a similar statement about every single aspect of life. The world would be in chaos!! (dramatic statement no 4)

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Colin Barrett

Mar 19, 2014 at 16:18

@ Steve

Yes, sorry. There was a reference to 2028 earlier in the doc. Can't get my head around that one (the difference between the 2028 reference and the 2018 one). 2018 seems very close for such a change.

For anyone interested, here's the link to the consultation:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293079/freedom_and_choice_in_pensions_web.pdf

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Phillip H

Mar 19, 2014 at 16:26

Hikky

Feel free not to respond. It all gets silly. I'm sure you are a good adviser and I'm sure I am as well. No-one else on this forum gives a rats backside about bickering. Have a good eve!

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gggggg hjhjkl;'

Mar 19, 2014 at 16:36

People who have spent a lifetime amassing a pension pot are hardly likely to turn into spendthrifts overnight, I would have thought.

As someone has already said why, given the new freedoms, would they do this with a pension pot, anymore than an ISA.

The question for me, is whether it is appropriate to use flexible drawdown and bring pension saving to an end. Perhaps using the new 150% rate under normal drawdown and retaining the right to continue contributing to the pension as and when might be more appropriate. Thus obtaining tax relief on the further contributions.

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Michael Brown

Mar 19, 2014 at 16:36

CB

54 pages then! And there is me thinking pensions are simple!!

Thanks for the info

Michael

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James Clancy

Mar 19, 2014 at 16:57

I see that this telegraph has done a quick straw poll on the budget in respect of savers.

http://www.telegraph.co.uk/finance/personalfinance/how-budget-affect-me/10708128/Budget-2014-Winners-and-losers.html

it appears that the" snake oil" is having a charmed affect.

I wonder who the 199 voters (13.87%) of the poll agree that pension savers are given too much freedom and will end up frittering away?

Most of the freedoms do not come effect until April 2015.

Remember "A Day" and the ability to put residential or holiday homes in your pension.

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Let Common Sense Prevail

Mar 19, 2014 at 17:10

whilst some of the changes are certainly welcome it clearly all aimed at getting the tax take up quicker relying on the population as a whole's, lack of discipline.

Ofcourse the vast majority of all our clients are not going to trun into spend thrifts overnight but thats why they are our clients,... a significant proportion of the general masses faced with the option £5kpa for life or £100k now will select the latter, spend it quickly and then be reliant on the state.

Imagine a hard working retiree with a fund of £200k who's useless 43 year old son is facing bankrptcy for the £70k in credit cards he has amassed who then puts pressure on Dad for his pension to bail him out

I could go on....this policy has not been thought out and will not end well

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nugget

Mar 19, 2014 at 17:48

Have they scrapped GAD rates also?

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DP's IFA

Mar 19, 2014 at 18:12

No just called them something else and increased them! At least that what I think he said. Seems to be one extreme to another.One minute we were going to use all our pension at 120% GAD so reduce to 100% then back up when they realise what a cock up that was with falling gilt yields. Now 150% get stuck in old son. Can't wait for ATIR low but requires 150% GAD to max out income and wants to invest in Bond & Cash. FOS will not be out of business unfortunately as all will develop memory loss when pension pot disappears and complain about advice. Well at least the governments new service will replace the banks at the top of the list!!!!

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Len Murray1

Mar 19, 2014 at 19:23

Although some pensioners are going to withdraw all of their pension and blitz it, most are going to withdraw it and stuff it in a savings account. And then complain that the interest they get isn't enough to live on. Very few will invest the money.

But won't a lot just hand the cash over to their children and then make out that they have no savings or income and need state funded long term care?

Also, who precisely is paying for all this 'free' advice that's going to be handed out? And who carries the can when it all goes wrong?

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Terry S

Mar 19, 2014 at 20:18

Although I welcome the added retirement flexibility that will be open to more people, I can't help but feel that this translates into the definite demise of 40%/45% tax relief upon pension contributions.

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Nick White

Mar 19, 2014 at 20:21

@ Steve / Colin B: the proposed rise in Normal Minimum Pension Age from 55 to 57 is to be effective from 2028 i.e. same time as SPA rises to 67.

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Hickky

Mar 19, 2014 at 20:24

@Philip h

Yeah, have a good evening as well.

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Ben DeToy

Mar 19, 2014 at 22:20

Nothing he has said about pensions is true:

"Nobody will have to buy an annuity with their pension" - not had to since 2006.

"Pensioners be able to take as much or as little from their pension with no restrictions" - not true. Flexible retirement reduced to £12k. For someone with, say, average state pension of £8k this still needs an annuity of £4k. Initial pension pot of around £100k with £75k after TFC.

Otherwise, 150% of GAD.

This is going to be so complicated that the saving on annuity rip offs by insurance companies will be taken up by extra advice fees. Not that I'm complaining about that - but it's going to be bad for the average consumer. But good for the wealthy. Who would have thought it of a millionaire old Etonian?

So, to make a real difference you need a pension pot of, say £150k plus.

There is bound to be a sting in the tail with all of this too.

Ok, £30k has now replaced the £18k lifetime total and the £2k x 2 small pot concession has been increased to £10k x 3. That is a good move.

The media are even going along with "for the first time you no longer have to be an annuity". The fact this has been the case for 8 years seems to have escaped their attention. Typical.

Oh well, business as usual. Wait for the detailed notes to come out, followed by the scrambled corrections and adjustments. In 18 months it will just be more complicated.

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Len Murray1

Mar 19, 2014 at 22:24

Ben, astonishing that even the Chancellor thought that you still had to buy an annuity.

The changes to flexible and capped drawdown are only valid from now until April next year. At that point they disappear, and get replaced with the free for all.

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Ben DeToy

Mar 19, 2014 at 23:00

Thanks Len, I have just been reading and re reading it and can't believe they will end up allowing that.

It seems frankly insane on several levels. Which probably means they will...

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Hickky

Mar 19, 2014 at 23:49

In a lot of ways the post 2015 regime will be like money purchase in the USA. You have a pot of money that you can spend or not after a certain age. People rarely just empty it immediately they can, but leave it, take some of it, give it away as they please. It's their money, if they want to spend it, pay off the mortgage or buy a new bathroom with it they can. The flat rate state pension means no more state aid, so make it last.

So what does this mean for AE schemes that de - risk on the run up to state retirement age? In most cases where the money will not be taken in one lump sum, it is poor thing to do. What of guaranteed annuity rates? Will they be needed at all if the drawdown option, if a bit prudent, can give you a better living standard. So many questions!

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nugget

Mar 20, 2014 at 00:02

You might not have buy an annuity ,but there is still a link and this continues to influence income drawdown levels .

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MikeR

Mar 20, 2014 at 00:08

Does anyone know:

(a) whether the 150% of GAD increase for 27 March applies to those of us with existing capped drawdown schemes -( I have one from which I am drawing down at 120% at the moment). Or does it just apply to new drawdown schemes

(b) Will the new rules allowing unlimited withdrawals only apply to new drawdown schemes, or will those of us with existing schemes also be able to make unlimited withdrawals?

My reason for asking - At the moment I am rogering the pension to the max to minimise the punitive and unfair 55% tax on the residual amount on death - or maybe this 55% tax will disappear also? The tax certainly gives one an incentive to remove money from the pension as rapidly as possible.

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Len Murray1

Mar 20, 2014 at 03:34

Hickky, the problem with the 'flat rate pension for everybody' is that not that many people will get the full flat rate. It looked great at first, but the devil was in the detail.

I personally will only get about £105/week when I retire despite a full NI record because I've spent my whole career paying into a contracted out scheme - which means a big deduction off the flat rate. The same will be true for many other retirees, both public and private sector, who've been in contracted out schemes.

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Gordon Sinclair

Mar 20, 2014 at 07:37

@ MikeR

I hope you dont mind me asking but I assume you have sufficient means to fall back on after you have "rogered" your pension scheme out of existence and wont have to rely on the state?

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Hickky

Mar 20, 2014 at 08:34

@ len Murray

If you are in a contracted out scheme it would have been a BBC scheme so the shortfall in the flat rate will not be a problem as your combined income will be over the flat rate.

@ Mike R

You do know that the 55% tax rate is for over 75 y o. Below this age it is super tax efficient if you hadn't, crystallised.

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Steve

Mar 20, 2014 at 08:40

@ MikeR

I suspect the 150% GAD will become payable on the first anniversary date after 27 March from when you first drew pension benefits, just as it did last year when the restored the 120% level.

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Michael Brown

Mar 20, 2014 at 08:44

Steve

Yes I fully agree.

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Mark via mobile

Mar 20, 2014 at 08:46

@mike r

I suspect it may come down to product provider systems being able to accommodate the 150%.

The 55% death charge is to change it says but no timescales or to what amount as yet.

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MikeR

Mar 20, 2014 at 12:48

@ gordon sinclair, yes I do! Have taken advantage of PEPs/ISAs over the years as i dont like pensions because of the restrictions on accessing my funds. The reason to roger the pension is not to blow it away but to get my money out of a regime that taxes the residue on death at 55% and to move it where I have complete control over access rather than the government controlling this via messing about with GAD rates and percentages. This of course now may change.

@hickky - mike is all crystallised! Health issues mean that I probably wont be long lived and I would like the family to have my money rather than the government!

@Steve, @Mark, yep that looks likely re the 150%. Regarding the change to being able to access ones whole pot, all th articles refer to "new" pensioners. It still seems unclear whether, as an existing capped drawdown pensioner, I will be able to access my fund in the same way.

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Phillip H

Mar 20, 2014 at 13:02

@MikeR. I really hope your surname is "roger"!! ;-)

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Phillip H

Mar 20, 2014 at 13:03

@ Mike. So for "death taxes " reasons you "roger" your pension fund for income. Lets assume that your other assets use up your IHT nil rate band. You have rogered your pension fund and pay at least 20% income tax (Possibly 40% or more). you then die and pay a further 40% in IHT. The best likely result from a death taxes point of view is that you end up paying 52% taxes as opposed to 55% and in the meantime you have taken it out of an environment where you have no CGT and little income tax on underlying income (akintto an ISA). If your income/or some of your income costs you 40% tax (which under new rules rogering it would almost certainly do) then the net "death tax" would be 64% as opposed to 55% (and again lose the income and CGt advantages of leaving it in the fund). The strategy you suggest is more likely to work if you are only a basic rate tax payer on the vast majority of your "rogered" income and still have unused IHT nil rate band which could of course be the situation someone like you is in.

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MikeR

Mar 20, 2014 at 21:14

@Philip H, ps, maybe I should just buy that Lambo after all!!

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MikeR

Mar 20, 2014 at 21:14

@Philip H, thanks for the comment - guess for this exercise roger is fine :-) - and calculation, very interesting and I would agree with your figures. I had already done a similar one, and come to the conclusion that it certainly wouldnt be a good idea to take everything from the pension at once. Not a 40% taxpayer, though IHT could be a problem. There is also an element of wanting to move my funds into an arena where I have full control of them, rather than the current arrangement where governments seem to mess about with my money at will..

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Neil Woodward

Mar 21, 2014 at 20:31

Just to clarify, the Govt have put a correction into their consultation document (the third page, unnumbered) - changing 2018 to 2028 for the time when the minimum age for taking benefits rises to 57.

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Neil Woodward

Mar 21, 2014 at 20:59

Also, it's been longer than 8 years since annuitisation was essential. Income drawdown started in 1995. With some products an annuity had to be purchased though I suppose.

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Neil Woodward

Mar 21, 2014 at 21:01

Compulsory annuitisation at age 75 ended at A-Day in 2006 though, with the introduction of the Alternatively Secured Pension.

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