Budget 2014 – Pensions

In the Autumn Statement 2012, the government announced that the Annual Allowance for pension savings will reduce from £50,000 to £40,000 for 2014-15 and subsequent years. In addition, a reduction in the Lifetime Allowance (LTA) from £1.5 million to £1.25 million from 2014-15 was announced, with a fixed protection regime (FP2014) being offered to individuals to prevent retrospective tax charges arising by allowing them to keep their LTA limit at £1.5 million. These changes were included in the Finance Bill 2013.

Fixed Protection conditions / consequences

  • Those in defined contribution schemes must ensure that no further contributions are made to the scheme after 6 April 2014.
  • Those in defined benefit schemes must not accrue further benefits above a “relevant percentage” after 6 April 2014.
  • Must opt out of auto enrolment.
  • Cannot be held if Fixed Protection 2012, Enhanced Protection or Primary Protection is held.
  • No valuation of the pension savings is required as the protection may be claimed regardless of the amount of the pension savings.
  • Applications must be made by 5 April 2014.

 

In December 2013 details of the individual protection regime for the Lifetime Allowance were published. Legislation will be included in the Finance Bill 2014.  Individual Protection 2014 (IP2014) allows individuals to keep their LTA limit at a personal value set by reference to the value of their pension savings at 5 April 2014 subject to a maximum of £1.5 million.

 

Individual Protection conditions / consequences

  • Pension savings at 5 April 2014 must exceed £1.25 million.
  • Must not hold Primary Protection.
  • No restriction on future pension savings but any excess over the personalised limit will be subject to a tax charge.
  • Application forms are expected to be available from around August 2014 after the 2014 Finance Act has received Royal Assent.
  • Applications must be made by 5 April 2017.
  • IP2014 may be held with FP2014 (or FP2012) and the Fixed Protection will take precedence.

 

Changing Access To Pension Savings

From 27 March 2014 the rules for obtaining drawdown of a defined contribution (usually a personal pension) pot are changing.  The new measures are:

  • Reduce the amount of guaranteed pension income people need in retirement to access their savings flexibly, from £20,000 to £12,000.
  • Increase the capped drawdown limit from 120% to 150% to allow more flexibility to those who would otherwise buy an annuity. The value of your pension pot is inflated to 150% and you are then allowed to take a certain percentage, calculated on an actuarial basis, of that inflated amount.
  • Increase the size of a single pension pot that can be taken as a lump sum, from £2,000 to £10,000.
  • Increase the number of pension pots below £10,000 that can be taken as a lump sum from 2 to 3.
  • Increase the overall size of pension savings that can be taken as a lump sum, from £18,000 to £30,000.

From April 2015 there will be further changes to the way you can access your pension savings from a defined contribution scheme.  You will still be able to take 25% as a tax free lump sum but if you take out more than that you will only be charged tax at normal income tax rates (currently 20%, 40%, 45%) rather than a flat rate of 55%.  The government also intends to impose a duty on pension providers to make free and impartial advice available to those on the point of retirement with a defined contribution pension scheme.

For those in defined benefit scheme (such as the Civil Service or NHS schemes) the government intends to introduce legislation that will prevent most people from transferring their pension pot into a personal pension scheme in order to access the more flexible drawdown arrangements.  It is considered that the cost to the public purse would be too great and therefore consultation on this subject has been published on Budget Day.

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Nov 25

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Alison Johnston has assisted us over the years with strategic planning for our legal practice. She has helped to point us in the right direction for external assistance other than financial help, and has enabled us to focus our minds on where we want our business to grow and succeed.
-- Ian Snipe, Snipelaw