Pensions were given a radical shake-up in the 2014 Budget.
The key change was to abandon the need to buy an annuity, giving the individual the power to manage their own pension payments.
The Chancellor George Osborne said the annuities market was “not working in the best interest of all consumers.”
In conjunction with the removal of the requirement to buy an annuity there will be a relaxation of the rules governing drawdown and commutation and lower tax charges on withdrawals above the limits.
Partner at RNS Financial Services Bob Marris welcomed the changes.
“In all my time at RNS, this is the biggest change to pensions I have seen.
“The scrapping of the need to buy an annuity will give individuals more flexibility,” he said.
“The power is in the hands of the person retiring. While clients may no longer need an annuity, they do need proper advice on what to do with their pension pot.”
His fellow partner Andrew Clayton said: “This is a new challenge for us that we welcome.
“It offers a good opportunity for clients to refresh their thoughts and plans in terms of ISAs and pensions.”
Drawdown of pension funds can either be capped or flexible. Capped drawdown was restricted to 120% of the basis amount (the equivalent annuity). This limit was increased to 150%.
Under flexible drawdown there is no cap, provided the individual has other income of £20,000. This income threshold was reduced to £12,000.
Where an individual over age 60 has total pension rights under all registered pension schemes of less than £18,000 a trivial lump sum commutation can be paid of the full amount. The limit of £18,000 was increased to £30,000.
It used to be that two pension pots with a value of less than £2,000 could be taken as a lump sum; the limit was increased to £10,000 and now applies to three pension pots.
In future full withdrawals of the pension pot will be taxed at the marginal rates of the pensioner rather than at the flat rate of 55% as and there will be consultation with regards to the 55% rate applied to certain pensions on the death of the pensioner.
RNS IFA offers a free initial assessment. It can be appropriate whether you are a long way off retirement or coming up to it.
For further details contact Bob Marris.