Flexible Drawdown from April 2015 – it’s Confirmed

In the March 2014 Budget the government promised much greater flexibility for DC (Defined Contribution) pension holders withdrawing their benefits. The consultation period which followed is now over and government has today confirmed the new flexibility and the main rules. These are confirmed as follows:

  • The new DC flexibility will commence from April 2015.
  • The guidance guarantee will be delivered by a range of independent providers, including TPAS and MAS.
  • A reduced £10,000 Annual Allowance (for new pension contributions) will apply after a client commences flexible drawdown, to help counter potential abuse. N.B. – this only applies to drawing down flexible benefits – taking a secured income (annuity) or only taking tax free cash will not trigger the limited Annual Allowance.
  • Defined Benefit (Final Salary) transfers will still be permitted provided professional advice has been given.
  • Tax-free cash remains at 25%.
  • The rate of tax on undrawn drawdown accounts at death will be reduced from the current 55% – with the new rate to be confirmed in the Chancellors Autumn Statement.
  • The minimum pension age is going to increase to 57 from 2028.

This is good news for those favouring flexibility of pension withdrawal. It is interesting that an Annual Allowance for further pension contributions will continue, albeit at a reduced level, and this will be helpful in designing strategies for retirees. This annual allowance will be afforded to those already on flexible drawdown under the previous rules – where previously no further contributions could be made after commencing flexible drawdown.

So, people of pension age will be able to access their DC pension pot, and take what they want, when they want it. The key will be to use this new flexibility sensibly to meet a client’s financial needs tax efficiently – and that is where good professional advice comes into its own. Please call us to discuss your retirement planning needs – 0845 013 6525.

Stay posted for more on this radical shake-up of UK pensions regulations!


Careful now.

Free “Guidance” at Retirement needs to be independent!

Government proposals to provide free retirement guidance have widespread support but more than half of over-55s think it should come from an independent, consumer body.

Chancellor George Osborne announced plans at the 2014 Budget to guarantee all retirees with a defined contribution pension “free, impartial, face-to-face advice”.

Retirement “advice”, which is regulated, was quickly replaced with “guidance”, which may be unregulated, subject to the final rules.

A survey by insurance and retirement specialist LV= found that 80% of respondents supported the proposals, due to take effect from April 2015.

However, the responses revealed a lack of faith in pension providers to give impartial, trustworthy guidance.

The survey of more than 2,000 people aged over 55 found:

  • 78% support free pension savings guidance for those approaching retirement
  • 52% would accept guidance from an independent, government-backed consumer body
  • 48% would act on guidance provided by an independent body
  • only 17% would choose a guidance session offered by their existing pension provider if given the choice
  • just 19% would act on guidance provided to them by their pension provider.

Managing director of LV= Life and Pensions, Richard Rowney, said the research findings:

“…support the widely held view that, for the guidance to be a success, those approaching retirement need to have trust in the process and the organisation offering the service. It is clear from our research that, in order for this to be achieved, the sessions should be provided by an independent body.”