2014 Budget Update – Pension Focus
Chancellor of the Exchequer George Osborne set about redrawing the retirement landscape in the 2014 Budget, introducing measures to allow retirees to spend their pension pot as they choose, rather than having to buy an annuity. “Let me be clear,” the Chancellor said. “No one will have to buy an annuity. People who have worked hard and saved hard all their lives and done the right thing should be trusted with their own finances.”
The measures mean retirees will no longer be taxed at an onerous 55% if they look to access the rest of their pension pot after taking their tax-free lump sum, they will be taxed at their marginal income tax rate although, for now, the portion that can be taken as a tax-free lump sum remains at 25%. Prior to this Budget, however, those with less than £2,000 in a pension pot could take it as cash. This year, this limit will rise to £10,000 for an individual pot and to £30,000 for people who have saved across a number of schemes. From 2015, the limits could disappear altogether.
The Chancellor also announced the introduction of a ‘pensioner bond’. Issued by National Savings & Investments from January 2015 for those aged over 65, this new bond will have an investment limit of £10,000 per individual. It is estimated some £10bnworth will be issued. Rates have not been set but initial estimates suggest a three-year bond could pay up to 4%. This compares with a rate of some 2.7% from the best fixed rate bond on the market. Pensioner bonds will be taxable in the same way as any other investment.
In a less headline-grabbing move, the Chancellor also announced plans to allow people aged 75 and over to continue to claim tax relief on pension contributions. This reflects extended working lives and the fact people are increasingly deferring or staggering their retirement. There has been criticism this measure may be abused by the super-wealthy to use pension assets for sophisticated tax avoidance.
The Chancellor’s main pension changes have broadly been welcomed, however, for placing choice firmly back in the hands of retirees. The additional freedom those saving in a pension will enjoy could mean more complex decision-making at retirement although the measures should also offer the opportunity, with appropriate advice, to build more sophisticated and tailored retirement solutions.
For more help and advice on all pension matters please do not hesitate to contact Paul Hoskin and his staff at Hoskin Financial Planning.
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