Pension Reforms

The Government has unveiled its latest plans for pension reforms, due to take effect from April 2015.

The reforms will give people with defined contribution pensions unrestricted access to their retirement fund, so that they can make withdrawals from it yet only pay a small amount of tax on what they take out. This removes the current restrictions.

The Government has now published plans with more clarity on how certain aspects of the system will operate. Here is a brief overview:

Following feedback from the pensions industry, the Government has today published clearer plans for how certain aspects of the new system will work, and some of the key points are listed below:

1. Free guidance

Everyone will have access to free impartial advice to discuss their retirement options. Guidance can be offered face-to-face, on the phone or online. It will be funded by a levy on insurers that will be paid for by higher charges on pension schemes.

2. Guidance from not-for-profit groups 

The Pensions Advisory Service and Money Advice Service will be able to provide a guidance guarantee and will be supported by Age UK and Citizen’s Advice. This means that vested interests won’t be involved in any guidance given and will be monitored by the FCA.

3. Be prepared for guidance sessions

Anyone having a guidance session with a pensions expert should go into it armed with the necessary information they will need to help them get the right guidance.

The Government has has said it will work with the FCA and the Pensions Regulator to ensure that anyone having a guidance session will have all the information they need.

4. Rules to stop ‘pension recycling’ and reduction in death taxes

There will be new rules will introduced that will prevent those over 55 from diverting portions of their salary into their pension, gaining tax relief in the process, and withdrawing the amount immediately, getting 25 per cent tax free. This is referred to as ‘pension recycling’ and can be used to get a pay increase from the taxpayer.

Anyone taking money from their pension over and above the 25 per cent tax-free lump sum will be allowed to keep contributing and still get tax relief. They can save a maximum of £10,000 per year.

5. Tax rules loosened

The Government has recognised that the annuity industry must be allowed to offer solutions that will help people get decent quality guaranteed income products. Tax changes will allow annuities that can, for example, decrease in value, so people can potentially take higher incomes at the beginning of retirement when they are most active, then reduce it and increase it again. People will also be able to withdraw lump sums.

6. Not all public sector workers can get access to pension freedom

Public sector workers who are members of ‘funded’ defined benefit schemes can transfer to defined contribution schemes so they can take advantage of the freedom rules.

However, members of unfunded public sector schemes, like the Armed Forces, will be banned from transferring.

If you have any pension concerns or would like help and advice to ensure that you make the most out of your retirement and plan accordingly, contact Derngate Wealth today.

The value of the investment can go down as well as up and you may not get back as much as you put in.


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