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Pension Rule Changes - a good budget!!!


CliveH

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Well the pension changes set out yesterday are pretty radical and VERY welcome – but they will not happen until 2015 and the full details will not be released until later today – so full analysis will not be available until later this month – as always – we have the headlines but have to wait for the real detail.

 

Given my previous posts on what makes pensions unattractive for many, these proposals would give pension savers more freedom, choice and flexibility than ever before over how they access their pension savings. These changes are seriously most welcome!!

 

If the changes go ahead, anyone of pension age would be able to draw as much (or as little) from their pension pot as they choose at any time.

 

25% would still be tax free. The balance would be taxed as income in the year it is taken.

 

But – as I say - the detail isn't yet set in stone. But this signals a clear Government desire to give savers more control, and responsibility, over their destiny in life after work. It could represent pension utopia, but my first thoughts are that for many – getting proper advice will be crucial to solve an increasingly complicated retirement equation.

 

These proposals will be consulted on this year, but in recognising the need for flexibility there is a boost for drawdown users almost immediately.

 

 

The chancellor has announced two welcome changes to income drawdown rules from 27 March:

 

1) Capped income drawdown - limit up 25%: The maximum yearly income allowed under the pension capped drawdown rules will increase by 25%, from 120% to 150% of the GAD basis amount, for income years starting after 26 March 2014.

 

2) Flexible income drawdown - MIR cut to £12k: The yearly secured income needed to meet the ‘minimum income requirement' to access flexible drawdown will be cut from £20,000 to £12,000 for those applying to start flexible drawdown after 26 March.

 

Taken together, these changes give pension drawdown users even more flexibility to dial income up or down to adapt to changing circumstances.

 

 

Pension triviality limits increased -

 

The Chancellor has announced welcome changes to the pension triviality rules from 27 March 2014:

 

a) Triviality limit up to £30k: Individuals over age 60, with total pension savings of £30,000, or less can take it all as a trivial commutation lump sum - the current limit is just £18,000 – again a significant increase!

 

b) Stranded pot rules relaxed: Small stranded pension pots of up to £10,000 can be taken as a lump sum - a significant increase from the current £2,000. And the number of small stranded personal pension pots that can be taken as a lump sum is increased from two to three. Again – a significant change that will help those with tiny “pots” access THEIR money in a tax efficient manner.

 

 

55% Drawdown death benefits charge set to be cut

 

It's been a day full of good news for drawdown users with the announcement of a consultation on the 55% tax charge on drawdown lump sum death benefits.

 

With much greater freedom proposed on taking pension benefits, there are plans to cut the rate of tax payable on drawdown death benefits from April 2015 to make it more closely aligned to income tax charges on drawdown.

 

Having a rate of tax on death which is greater than the income tax on withdrawing income could see the tax tail wagging the retirement income dog. The Government have recognised the need to have a tax system where pension savers are not penalised by only taking what they need from their pension fund.

 

This should see the ability to pass on pension death benefits to loved ones given a further boost and make the use of bypass trusts even more appealing.

 

This is all very very good news!

 

 

LONG OVERDUE! - But welcome changes never the less. :-D

 

 

 

 

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Well, not that I pretend to have understood most of it, it did sound like a good budget for pensioners and savers..

 

Although where that leaves their kids and/or grandkids(the Tories' much talked of "Hard Working Families") who may've had their child benefit stopped and/or are finding themselves in/approaching the 40% tax bracket, I'm not so sure....

 

Oh well...I suppose it has helped claw back some of the grey-vote from UKIP... ;-)

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Well of course as Clive says, wait for the detail but on the face of it good news.

 

Of my two occupational pensions with the Post office and Social service, initially I'm thinking take one into annuity land and the other as lump sum.

 

At least there's some balance there and all eggs are not in one proverbial basket. Bit to go though yet and as usual my God tends to laugh at planners :D :D

 

In edit, just a quick glance at it shows no change to final salary scheme pension, I guess Lady T's may well be getting 'cashed in ' then.

 

Sultan Of Blackburn

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Guest pelmetman
pepe63 - 2014-03-20 8:18 AM

 

Oh well...I suppose it has helped claw back some of the grey-vote from UKIP... ;-)

 

Buying votes was clearly the intention *-)...............Coz they know if anyone is likely to vote...........it'll be the grumpy old men brigade :D.....................has it worked? :-S...........

 

 

Not with this grumpy middle age man >:-)............

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Guest pelmetman
That's the Tories for you ;-)....................they haven't a clue whats life's really like in Bingo Bingo land :D........
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pelmetman - 2014-03-20 12:46 PM

 

That's the Tories for you ;-)....................they haven't a clue whats life's really like in Bingo Bingo land :D........

 

Excellent! (lol) (lol) (lol)

 

But J H C !! - didn't Ed Balls make a prat of himself this morning - YES! - the Bingo Tweet is stupid and typical of the ivory tower Conservative Eton Rifles - HOWEVER !!!!

 

When it comes to being Condescending - Ed Balls saying that people should not have the Freedom to use their own pension pot as they wish because "they may spend it all" is about as condescending as anyone can get.

 

We have clients who end up having both a fair bit of capital in pensions and in ISA's and other savings vehicles. NOT ONE OF THEM RUSHES OUT AND BLOWS A "STASH" ON A FERRARI OR SIMILAR JUST BECAUSE THEY REACH RETIREMENT AGE!

 

So why on earth does this arrogant (it's not nice to insult people) Ed Balls think that relaxing the rules on pensions will automatically mean that pension savers throw good financial prudence out the window???

 

So yes - I think the Bingo reference is stupid - but the underlying totalitarian inference of Ed Balls' comment is significantly and deeply more worrying to me.

 

 

 

:-S

 

 

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CliveH - 2014-03-20 3:54 PM

 

But J H C !! - didn't Ed Balls make a prat of himself this morning - YES! - the Bingo Tweet is stupid and typical of the ivory tower Conservative Eton Rifles - HOWEVER !!!!

 

When it comes to being Condescending - Ed Balls saying that people should not have the Freedom to use their own pension pot as they wish because "they may spend it all" is about as condescending as anyone can get.

 

We have clients who end up having both a fair bit of capital in pensions and in ISA's and other savings vehicles. NOT ONE OF THEM RUSHES OUT AND BLOWS A "STASH" ON A FERRARI OR SIMILAR JUST BECAUSE THEY REACH RETIREMENT AGE!

 

So why on earth does this arrogant (it's not nice to insult people) Ed Balls think that relaxing the rules on pensions will automatically mean that pension savers throw good financial prudence out the window???

 

So yes - I think the Bingo reference is stupid - but the underlying totalitarian inference of Ed Balls' comment is significantly and deeply more worrying to me.

 

:-S

 

 

But Clive, as a financial advisor,of cause your clients are going to appear responsible..If they weren't, they wouldn't be clients of a financial advisor in the first place....

 

It's the ones who won't seek proper advice that'll be the problem...

 

..and I should imagine a few cruises, a new conservatory, a new motorhome/Caravan & tow car, maybe some solar panels on the roof etc (.."well, why shouldn't we, eh!")would make a fair old dent in the average pension pot...

...and this term "Draw down" sounds quite highbrow and responsible..but surely it's just financial speak for "cash in" and "spend".... *-)

 

Change rules by all means...but this has an air of "throwing the baby out with the bath water" about it...

 

And if you reckon that some "pensioners" won't blow their pension pots, then have a chat with Dave(who openly posts that his old chap blew 150K in ten years!...).

 

I also wonder how all these "easy to access funds" are going to factor in when it comes to long term social and medical care..?...

What once may have only been a few hundred quid a month pension income, will now be seen as a whooping great accessible cash lump... :-S

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pepe63 - 2014-03-21 10:41 AM

 

 

But Clive, as a financial advisor,of course your clients are going to appear responsible..If they weren't, they wouldn't be clients of a financial advisor in the first place....

 

It's the ones who won't seek proper advice that'll be the problem...

 

..and I should imagine a few cruises, a new conservatory, a new motorhome/Caravan & tow car, maybe some solar panels on the roof etc (.."well, why shouldn't we, eh!")would make a fair old dent in the average pension pot...

...and this term "Draw down" sounds quite highbrow and responsible..but surely it's just financial speak for "cash in" and "spend".... *-)

 

Change rules by all means...but this has an air of "throwing the baby out with the bath water" about it...

 

And if you reckon that some "pensioners" won't blow their pension pots, then have a chat with Dave(who openly posts that his old chap blew 150K in ten years!...).

 

I also wonder how all these "easy to access funds" are going to factor in when it comes to long term social and medical care..?...

What once may have only been a few hundred quid a month pension income, will now be seen as a whooping great accessible cash lump... :-S

 

Just to 'back up' what you say above, Pepe -- didn't I read somwhere (yesterday) that the average 'spend' on retirement, is £33,000. per couple during the first three years? T'was about correct for us -- motorhome, holidays, house trepairs, etc. -- but then, we were lucky enough to have public sector pensions! :D

 

Colin.

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No best not!!! :-S (lol) (lol) (lol)

 

Do remember that the Government has allocated £20M for an "advice service" to enable people to get guidance on their options.

 

But - in my opinion - these changes are long overdue - how can it possibly be right for the rules to dictate annuities as the only option for those with modest pension pots such that the income is so low due to low annuity rates that individuals have to live longer than their life expectancy in order just to get their annuity pot back!

 

And surely - no one can possibly think that a Death tax hit of 55% on a Drawdown Pension Fund was in ANY way "fair"?????????

 

Yes - the idiots amongst us could fritter away their pension pots but I doubt that it is a real issue because few idiots actually bother to plan for retirement anyway! - but more importantly is it right that in order to protect the stupid minority - the sensible majority has to suffer a "Lowest Common Denominator" rule?

 

This to me is where the REAL Condescension appears ! :-S

 

 

 

 

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pepe63 - 2014-03-20 8:18 AMWell, not that I pretend to have understood most of it, it did sound like a good budget for pensioners and savers..Although where that leaves their kids and/or grandkids(the Tories' much talked of "Hard Working Families") who may've had their child benefit stopped and/or are finding themselves in/approaching the 40% tax bracket, I'm not so sure....Oh well...I suppose it has helped claw back some of the grey-vote from UKIP... ;-)

 

Child benefit stopped?  IIRC that only applies to those where one is earning over £50,000 per annum but there are provisions whereby it can still be claimed/paid even up to £60,000.  So a household with both working bringing in £99,999 still get it as a matter of course.  Above that, up to £119,999 the couple have to decide if they wish to go down the tax route.  However HMRC confirms it is financially beneficial to do so.  Poor darlings!!!

 

Earnings in the 40% bracket?  Learn to live within their means then like we did. 

 

I do believe the budget announced:

Working parents will be given up to £2,000 per child under Budget plans to ease the cost of child care............The expanded annual payment for child care, which will be available to all families earning under £150,000.   £2000.00 PER CHILD!!!!  So the household brings in £149,999 a year and the bloody government gives them another £2000.00 per child from my taxes....and the household bringing in under £120,000 gets child benefit AS WELL!!!!.....now where is the justice in that given the state/conditions some pensioners live in.....and people moan about some of those not in need getting the heating allowance of £300.00 if you're lucky enough to get it!!!

 

So we're supposed to feel sorry for the 'squeezed' families?  It makes my blood boil to see 'my' pension taxes flowing into households already ten-fifteen times better off financially than me, and tens/hundreds of thousands like me.

 

The bottom line regarding children should be....'If you can't afford them don't have them'......and IMO those in the 40% bracket should be receiving nothing other than the standard Child Benefit.....zilch.....nada.....zero.

 

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I think I'm right in saying that the 40% tax bracket kicks in at about 33-34,000?..so although a very decent income(...and many times more than I could've dreamt of bringing in), nowadays it's hardly the salary of the high flying Bank Manger/Company Executive types that it was meant to draw from.... ;-) ...

 

We know a fair few "pensioners" around here( ;-) ) and they're of a fairly wide cross section(ex manual workers, public sector, professional types) and none of them are what you'd call "hard up"...They all seem to manage well enough to able to change their cars on a regular basis, have their conservatories built, have their golfing holidays etc.(..and good luck to them).

 

Even the "worst off" we know, once all the "add ons" are taken into consideration(pension credits, free rent) is bringing in more than some blokes I know, who are working 40-50+ hours a week....

 

I'd certainly agree that chucking money for "child care" etc, at folk on 6 figure sums, seems almost obscene.. :-S

 

I'm still very suspicious of them fully opening up access to folks' pension pots though..?

What are they up to...?

What would have been a(presumably protected?) "pot", that would drip feed a regular income, may(will?) now been seen as "money in the bank"...And as I said before, where is that now going to leave folk when it comes to the funding of social care or age related medical care?...

 

(....although there will be no "retirement age" at all by the time me and the OH get there!...

let alone "pension credits" or "Red Wine & Christmas Sherry payment"...Sorry!.. I meant, "Winter Fuel Allowance"... (lol) )

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