01206 823 953   |   This email address is being protected from spambots. You need JavaScript enabled to view it.

A refreshingly clear approach to your financial planning

Taking Benefits after 6 April 2015

From 6 April 2015, retirement income limits will be removed for money purchase pensions. So members of pension age will be able to take what they want from their money purchase pension pot, when they want it.

And, unlike the current rules for flexible drawdown, there won't be a ‘minimum income requirement'.

There will be two main bases for accessing money purchase funds flexibly:

  • Flexi-access drawdown - income drawdown will be known as flexi-access drawdown. You'll be able to draw any amount, over whatever period you chose.

    Generally speaking, you'll be able to take 25% of the fund as a tax free lump sum when you designate new funds for drawdown and any income drawn is then taxable as pension income.

    As soon as you access any fund under flexi-access drawdown, you'll be subject to a £10,000 annual allowance for money purchase contributions. Existing ‘capped drawdown' users on 5 April 2015 won't be caught - as long as their drawdown income remains within the income cap.

    Existing ‘flexible drawdown' funds will automatically convert to flexi-access drawdown on 6 April 2015 - good news, as currently those in flexible drawdown have zero annual allowance.
  • Uncrystallised funds pension lump sums (UFPLS) - you'll be able to take a single or series of lump sums from your uncrystallised funds, without actually having to designate them for drawdown first.

    25% of the UFPLS is paid tax free, with the balance taxable as pension income.

    But there are conditions that must be met: The conditions below are examples of the more common conditions likely to be relevant to clients. Be aware that there are more, and that this insight is not a substitute for proper advice.
  • It must be payable from uncrystallised rights held under a money purchase arrangement and (if under 75) you must have enough lifetime allowance available to cover the full amount of the UFPLS
  • Over 75, the conditions are complex if you are close to or have exceeded your lifetime allowance. These are too complex to describe here.
  • You must be at least age 55 or meet the ill-health conditions.
  • Additionally, you can't take such a lump sum if you have:
    • Primary enhanced protection with protected tax free cash rights; or
    • in some cases where a pension is already in payment or there is pension credit from a divorce.

The key, of course, will be using this new flexibility sensibly to meet financial needs tax-efficiently. The new freedom brings temptation and a lot of new responsibility and there's a danger that some pension savers will draw their pension savings at the first opportunity. This could see them hit with a large income tax bill - much larger than the bill for only taking what they needed, when they needed it.

And, of course, there's a danger that some may fritter it all away without any constraints to hold them back. Equally, there will be those who will be tempted to stick it all in the bank - but they do so at their peril as the long term effects of inflation may erode their fund's spending power.

There are some circumstances where the new flexibility is not available:

  • Existing annuities or scheme pensions: Those who have locked into a lifetime income using annuities, or scheme pensions, can't undo them. This means many existing pensioners won't have access to the new flexible income options.
  • Defined benefit pensions: The new income flexibility won't be available for defined benefit pensions. However, those with AVC pots will be able to access flexibility, either within the defined benefit scheme or by transfer to a new pension.

Scheme/product restrictions: Although a statutory override will allow schemes to ignore their rules and follow the tax rules instead, there's no obligation for every money purchase pension scheme or provider to offer the new income flexibility. For example, some pension schemes may not have systems in place to facilitate money purchase flexibility.

Our Insights page ...

"" ... is designed to give you more information on a whole range of topics, and we will continually add to this as time goes on. We hope you find it useful but please note that it is not advice and you should not take action based upon it.

Stand out from the crowd""

... tell us what you think.

Is there anything else you would like us to include? We welcome your feedback on our site.

  • Clear Understandable Advice
  • Professional and Friendly Service
  • Fair and Transparent
    Fees

CII Code of Ethics                                     Privacy Policy

 © 2015 Arcaria Financial Solutions Ltd.

Arcaria Financial Solutions Ltd. is authorised and regulated by the Financial Conduct Authority
Registered office: Warden House, 37 Manor Road, Colchester, Essex, CO3 3LX
Company registered in England and Wales. Registered No. 8048391

Website by Footsteps Design

 

 

If you wish to register a complaint, please write to or telephone Arcaria Financial Solutions Limited, 14 Westlake Crescent, Wivenhoe, Colchester, CO7 9RZ.  Tel: 01206 823953

A summary of our internal complaints handling procedures for the reasonable and prompt handling of complaints is available on request and if you cannot settle your complaint with us, you may be entitled to refer it to the Financial Ombudsman Service at www.financial-ombudsman.org.uk or by contacting them on 0800 023 4 567.