Financial
the future Pensions –
“This government believes in the principle of freedom. Individuals who have worked hard and saved responsibly throughout their adult life should be trusted to make their own decisions with their pension savings” – George Osborne
T
he Government is introducing the most radical changes to pensions in almost a century. The changes
were initially proposed by the Chancellor in his March Budget and the Government has now confirmed that those changes will take effect from April 2015. From April 2015, pension inves-
tors aged at least 55 will have total freedom over how they take an income from their pension funds. You will be able to take the entire fund as a lump sum, which could then be spent, invested or gifted. The first 25 per cent of the fund is tax-free, with rest subject to income tax at your highest marginal rate, either 20 per cent, 40 per cent or even the top rate of 45 per cent. You will also be able to take your pension fund out in stages, rather than all at once, which could help manage your tax liability. It will also be possible to take the tax-free cash and defer taking the taxable income until a later date. The restrictions currently
applying to pension income draw- down will be abolished. Currently there are limits on how much can be drawn from a personal pension fund each year, known as the Government Actuaries Department (GAD) maximum. From April 2015, these limits will be scrapped and investors will be able to draw as much or as little income as they like.
Using income drawdown
means that your pension funds remain invested and under your control, giving you choice with regards to how much income you take and where the funds are invested. Income drawdown is a higher risk option, as unlike a secure income from a conven- tional annuity, where income is certain, the risks and respon- sibilities with drawdown rests with the investor and their financial adviser. Poor investment performance,
combined with excessive income withdrawals, can significantly erode pension fund values which could result in a worst-case scenario of the funds running out. A further change is a reduced annual allow- ance of £10,000 per annum for those who elect to take pension income in addition to their tax-free cash after April 2015. There are also going to
be fundamental changes to the ability to transfer defined benefit pension to a SIPP. Anyone with a defined benefit (final salary) pension will be able to take advantage of the new rules and make unlimited with- drawals but, to do so, you will have to
ABOUT THE AUTHOR
Alasdair
MacDougall Dip PFS is a director of Martin Aitken Financial Services
transfer to a defined contribution pension, for example, a SIPP before April 2015. This is a decision not to be
Limited which is authorised and regulated by the Financial Conduct Authority. For more information, contact Martin Aitken & Co on 0141 272 0000.
taken lightly, or without expert, independent advice, as you could lose very valuable benefits. After April 2015, it will no longer be possible to transfer from most public sector pension schemes to a defined contribu- tion pension. However, in a recent Government paper they have stated that they will allow private defined benefit schemes to take advantage of the new rules provided they take financial advice in making their decision. This does not need to be done by April 2015. There are also proposals to
reduce the tax paid on pension funds when you die. If you are in drawdown or you are 75 or over, any lump sum paid to your beneficiaries is currently taxed at 55 per cent. The Government believes this is too high and has promised to review later in 2014. It could be very beneficial to have
a review of any existing personal pension or SIPP contracts now, as new lower cost flexible arrange- ments have been developed to ensure maximum flexibility and control over your investment strategy, income wi thdr awa l and t ax planning.
Scottish Dental magazine 39
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