Budget
and
pensions
update
There has been a great deal of press around the Chancellors proposals and I hope to put the changes in proportion.
The finance bill will be issued this Thursday 27th March 2014 which will hopefully provide more clarity. The proposals will be consulted during 2014 and they could be implemented as soon as April 2015.
The key point is that the Chancellor has given you more freedom with your defined contribution pension. However, to stop people exploiting the increased flexibility, final salary (defined benefit) pensions will likely have restrictions on transfers.
The main proposals are:
- You will be able to take out as much as you like from your pension, but if your total income is above the high rate tax threshold (i.e. £41,500 2013/14) you will pay 40% tax.
- The tax on the remaining pension after your dependant’s death will go to your beneficiaries minus a death benefit tax charge, but this will be reduced down from 55%.
In the interim the Chancellor has increased the capped drawdown limit from 120% to 150%. This should be available for those of you in drawdown from the anniversary of your income year. This will be dependent on the pension provider making the IT changes.
To summarise, this is very good news for you. These proposals reduce the death benefit charge and give you more flexibility.
For example, let's say you are a high rate income tax payer today and you retire as a basic rate tax payer. If you invest in your pension today you save 40% income tax, on retirement you pay 20% tax, therefore getting 20% for free. You can also take out 25% tax free and the remaining pot can be passed onto your beneficiaries, minus a death benefit charge (which is reducing down from 55%).
Finally the new ISA (NISA) will be available from 1st July 2014 and you will be able to invest up to £15,000 in cash or stocks & shares.
Kind regards,
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