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More flexibility for pensioners

Source: | | 13/11/2014The Taxation of Pensions Bill was presented to Parliament on 14 October 2014. The Bill introduces the Government's proposals to allow people aged 55 and above access to their money purchase pension savings as they wish during retirement, subject to their marginal rate of Income Tax from April 2015.

The list of changes to be affected are as follows:

• 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 flexible drawdown fund once arranged with their scheme should they wish;

• enable pension schemes to make payments directly from pension savings with 25 per cent 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 and lump sums from money purchase pension savings;

• remove some 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 for money purchase savings where the individual has flexibly accessed their savings;

• 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;

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

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

Whilst these changes will help pensioners access their pension savings there are concerns that these changes will cause problems if pensioners spend their pension savings instead of providing a pension for later in life.

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