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Recent changes to Pension Legislation

A whole raft of proposals were announced in the March 2014 Budget. These still need to gain Royal Assent this Autumn but are widely expected to be passed in to law, in spite of furious lobbying by annuity providers and non-advised annuity sales desks,

Capped drawdown

  • Maximum income withdrawal under capped drawdown is now calculated in the same way as before except that the maximum drawdown is now150% of the HMRC rate, up from the previous 120%
  • Altered withdrawal limits for existing cases will take effect from: The start of the next reference period on or after 27th March 2014
  • Capped drawdown does not cease at age 75
  • On death after pension has been crystallised, the options at any age under capped drawdown are as follows:

    • - Spouse/dependant may draw a pension from the fund, subject to their own capped drawdown limits
    • - Spouse/dependant may purchase an annuity with the remaining fund
    • - Spouse/dependant or other individuals may take the fund as cash subject to a tax recovery charge of 55%
    • - Remaining funds may be paid to a charity free of any tax charge if there are no living dependants
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    Flexible Drawdown

  • Flexible drawdown is only available to those who can demonstrate sufficient secure income to meet the Minimum Income Requirement (MIR) of £20,000pa. - The MIR can be be met from State Pension, pension annuity and company pension income. - This requirement will apply at the first time an individual wants to exceed the annual capped drawdown limit
  • On satisfying the MIR, further drawdowns from the pension fund are not limited and individuals may draw down any amount they wish
  • Amounts drawn by an individual when they are resident outside the UK for a period of less than 5 years will be liable for UK income tax for the tax year in which they become resident again
  • Any further contributions to pension will be subject to the Annual Allowance Charge to avoid recycling of pension funds
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    Minimum Income Requirement (MIR)

  • The MIR is £20,000 p.a. for individuals
  • The level will be reviewed every 5 years
  • To count toward the MIR, income must be:

    • Pension income (State or private)
    • Guaranteed for life
  • Level income will qualify provided it is payable for life from a pension
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    Lump Sum Benefits

    Certain lump sum benefits will be available post-age 75 including:

    • Pension Commencement Lump Sum (PCLS)
    • Trivial commutation of funds up to £18,000
    • Lump sum death benefits including value protection

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    Tax Recovery Charge

  • The tax recovery charge on lump sums paid either from capped drawdown or Value Protected annuities is now 55%.
  • Such lump sums will not normally be subject to Inheritance Tax.
  • A charge may arise where scheme trustees have no discretion with regard to paying out of lump sums after the death of scheme members.
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    State Pension

  • Between April 2010 and November 2018 women's State Pension Age (SPA) will increase to 65
  • Between December 2018 and April 2020 SPA will increase to 66 for men and women.
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    What does this mean?

    A shortfall for both men and women. Unless people are able or willing to work longer, then the shortfall will have to be met from private pensions and investments. The sooner a retirement plan is implemented the greater the likelihood of fulfilling your retirement expectations.

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