Budget 2014 – consultation response issued by Government
Today the Government issued their response to the consultation on the Freedom of choice in pensions. There were a number of outcomes, which will be issued as draft legislation for technical comment in August 2014 and introduced to Parliament in autumn 2014.
Defined benefit transfers
- Unfunded public sector schemes- transfers will not be allowed.
- Funded public sector schemes – transfers will be allowed with regulated financial advice.
- Private sector schemes – transfers will be allowed with regulated advice.
Trivial commutation rules will remain for defined benefit schemes allowing members to draw a lump sum if their transfer value is less than £30,000. The age at which the trivial commutation rules apply will be reduced to 55, from age 60.
Death benefit tax charges
It has been confirmed that the 55% tax charge on death is too high, but due to the complexity of this area, the level that will be introduced will not be announced until the Autumn Statement.
- Flexible drawdown – those already in flexible drawdown will see their annual allowance increase to £10,000 from nil in 2015.
- Capped drawdown – those already in capped drawdown will continue to have an annual allowance of £40,000 provided they do not exceed their income limits.
- New entrants to drawdown – if only tax free cash has been drawn then the annual allowance will remain at £40,000. Once income is taken then it will reduce to £10,000 thereafter. This applies to all schemes and not just the one from which the income has been taken.
The minimum pension age will increase for all schemes from 55 to 57 in 2028 with the exception of Police, Armed Forces and Firefighters Pension Schemes.
The guidance guarantee will be available to those with defined contribution pension savings and will be provided by impartial independent organisations such as TPAS and MAS. The guidance, although tailored to individual circumstance will not recommend products or providers. The Treasury-based team leading the implementation of the guidance guarantee will continue its intensive service design work over the summer and into the autumn.Providers and schemes will have a duty to ensure that members are made aware of the guidance guarantee.
Scheme rules restrictions
Although there is not a requirement for all schemes to offer the new flexibility they will have the option to do so without the need to change their scheme rules.