More flexible pensions with latest proposal from the Budget …

Budget 2014 proved to be something of a surprise for many in the pensions industry. The industry has been calling for pensioners‘ income flexibility and choice at retirement to be widened, however the scale of the announcements in Budget 2014 could not have been anticipated.

It is unprecedented for changes of this scale to be implemented, particularly in such short timescales, without consultation.

So why such drastic changes, one of the reasons is politicians are disappointed  with the failure of pension providers to provide consumers with full transparency and choice AND value on annuity choices.

Another is that these changes will mean that many people will extract funds from their pension and this will produce tax revenue for the government.

Finally an election is looming…

All pension scheme providers will have to make immediate changes to their systems to account for the changes to the pension regime effective from 27 March 2014. These include:

  • a reduction in the amount of guaranteed pension income, or minimum income requirement, people need in retirement to access their pension savings flexibly, from £20,000 per annum to £12,000 per annum;
  • an increase in the capped drawdown limit from 120% to 150%;
  • an increase in the size of a single pension pot that can be taken as a lump sum, from £2,000 to £10,000;
  • an increase in the number of pension pots of below £10,000 that can be taken as a lump sum, from two to three;
  • an increase in the overall size of pension savings that can be taken as a lump sum, from £18,000 to £30,000.

The potential impact of the reduction in the minimum income requirement to £12,000 per annum is likely to result in many more people taking their whole pension fund early, this is likely to increase the tax paid to HMRC and is likely to mean that consumers will make uninformed choices and his will lead to increased reliance on state benefits at a later date.

Whilst these reforms appear to be the bedrock of a new, more flexible pension system in the UK it will take some time for the industry to fully digest their impact.

We are currently reviewing the detail behind these changes and will provide further guidance in due course. In the interim, all immediate changes will be implemented.

Although we welcome the fact that the chancellor has removed the shackles from pensions, we would urge people to take time to fully consider all options and to take proper advice….

The sure beneficiary is HM treasury as tax receipts will increase significantly; HM treasury will also benefit from an increase in Stamp duty and land tax as people are bound to funnel money from their pensions into property.

As a consequence the housing boom will be resurgent AND the subsequent collapse in property prices that will follow be even greater. More fuel to the fire and a solid return to financial boom and bust handling of the economy.

Ray Best can help you protect your financial future. To find out more, simply click here!

About Ray L Best

Ray Best has had over 30 years experience of advising on complex financial matters. A published author of a number of books including “Partnership and Shareholder Protection”, Inheritance Tax Simplified”. We provide an initial meeting at no cost and only engage with clients when we can add significant value.

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