Budget 2014 – Getting Flexible
One of the first changes to take effect from the 2014 Budget will be the reduction in the minimum income requirement (MIR) for flexible drawdown. This will, in theory, open flexible drawdown up to many more people in advance of the proposed changes to drawdown in April 2015.
The MIR is being reduced to £12,000 from £20,000 on the 27th March 2014, a significant drop. A 65 year old in good health would have needed around £130,000 to £140,000 to purchase the additional £8,000 that would previously been needed to meet this level of guarantee.
The MIR can be made up of a number of pension incomes, which include:
- Payments of a scheme pension or dependant’s scheme pension provided by a registered pension scheme, that has 20 or more pensionable members.
- Payments of a lifetime annuity or dependant’s annuity made by a registered pension scheme. Where the rate of the annuity is variable only the base level can be taken into account.
- Payments under the Financial Assistance Scheme (FAS) that are payable for life.
- State pension benefits.
- Payments under an overseas pension scheme which, are equivalent to the above.
The MIR must be received in the year in which the flexible drawdown declaration is signed. The payments do not have to have been made at the point of declaration; they just need to be in place to be received. This means that for each income that is to be used in the declaration, one payment must have already been made, so it is not possible to rely on an income paid annually in arrears before the first payment has been made.
There must also have been no relievable pension contributions paid in the tax year in which the declaration is signed; so if any payments have been made this tax year, it is not possible to enter flexible drawdown until 6th April.
Going forward, the member will no longer have an annual allowance. Therefore, although they would be able to make pension contributions and receive tax relief, they will have a corresponding tax charge to pay personally. If an employer makes a contribution, the member would still have a personal tax charge even though it is the employer who would have had any applicable tax relief.