From Ros Altmann:economist and pensions,
    investment and retirement policy expert

  • pensionsandsavings.com

    Pensions and savings revolution! My wishlist comes true

    Pensions and savings revolution! My wishlist comes true

    19 March 2014

    Unbelievable news – pensions and savings revolution

    So much of what I’ve been calling for is suddenly happening – exciting or what?

    Pensions and ISAs more flexible, limits more generous – a Tory votewinner

    After so many years of waiting for good news, suddenly so much comes at once.  Like the proverbial Number 13 buses, a whole raft of policies has all come at once – and they are good news. It’s also a brilliant Budget for Tory election prospects of course.  The devil of some of this will be in the detail but overall this is just good news all round.  And will even bring in more tax for the Chancellor short-term as pension lump sums will deliver higher tax revenue than taking small amounts of income or delaying annuity purchase.

    ISAs now more flexible:  The Chancellor has delivered a Budget for savers, albeit against the backdrop of pitiful interest rates, but allowing a £15,000 ISA limit and all of it in cash, will suddenly increase the interest income that people can earn, since they will no longer be taxed on it.

    The Chancellor will finally allow people to choose whether they put all their ISA allowance into cash, or stocks and shares, rather than only being allowed to have half in cash.  You can switch, as you wish, between different investments and will be able to do what’s best for you.  If you are saving for a house deposit, you can put your money into cash and not worry about investment risk.  If you’re retired and trying to live on your savings, again you can shelter more money from tax without being forced to take more investment risk.

    First £5,000 of savings interest to be tax free:  Currently, there is a 10% starting rate of tax for very low earners, up to £2880 of income, but that starting rate is now rising to £5,000 and the 10% rate is being cut to zero.  This will help poorer savers and will also be simpler.

    Pensions flexibility massively enhanced: There are so many good news aspects for pension savings in this Budget that it is hard to know what to pick out.  The overall message is, pension savings are going to be more flexible at the point of retirement. You will be able to save more into pensions knowing that there will be less restriction on what you can do with the money.

    Nobody needs to buy an annuity and before you do, you_ll have to get face to face advice:  All DC pensions look set to be freed from the annuity straitjacket that has so disadvantaged people in the past.  As the Bank of England’s policies have brought long-term rates so low, annuity rates have plunged and people get very poor value from the annuity market.  The FCA recently exposed just how badly some annuity companies are treating customers and I have been campaigning for the changes that have been announced today for years.  The Chancellor now says before buying an annuity people will be entitled to face to face impartial advice.  That will be consulted on, but is so important.  I don’t know if they are frightened of a new mis-selling scandal, like I’ve been warning, but whatever the reason it’s essential that people understand what they are doing before buying an irreversible annuity. 

    Taking more pension funds as cash:  Currently anyone with pension savings below £18,000 can take all the money as cash, with a quarter tax free.  In addition, your two pension pots worth under £2000 can be taken as cash but the remainder has to be either annuitised or put into drawdown.  The Chancellor is massively extending these limits, so that anyone with pension savings under £30,000 can take it all as cash and up to three funds below £10,000 can also be cashed in, with tax paid at the marginal rate.

    Drawdown enhanced:

    1. Minimum income requirement cut to £12,000:  Those who are in income drawdown currently can only take their money without restrictions if they have secured pension income for life worth £20,000 including state pensions.  That limit is now being cut to £12,000 a year income.  Many will be able to achieve that from state pensions plus a bit extra, so they will end up being able to invest in flexible income drawdown and have access to their money.

    2.    Capped drawdown limit increased to 150% of GAD rate:  People are currently restricted to taking only a certain amount each year from their pension fund.  This limit is set by the government actuary at 120% of the rate on a single life annuity.  The chancellor is increasing this to 150% (it has only just been raised from 100%) which will be welcome news.  This will also help people in poor health, who currently could get better than standard annuity rates but were penalised by the income drawdown system.

    3.   55% penal tax rate on drawdown is being reduced to marginal rate:  Many people have been stung by the tax rate on drawdown being 55% for monies left over, but the Chancellor is cutting that to just the marginal tax rate.  This is far fairer.


    Tory vote-winning budget: This is undoubtedly a Budget to boost Tory votes.  Savers and those with good sized pension funds will feel far better off and have been pleading for some help – at last it has arrived.  Even smaller savers are being helped, with higher amounts of pension money being available as cash lump sums for smaller pension funds and with a zero per cent starting rate of tax on savings income, added to which rules for ISAs are becoming far more generous. 

    A budget for savers at last!  Well well, who_d have thought an election was coming up next year?  Many of the measures will only start in the run-up to the next election.  A master political strategist has really thrown down the gauntlet now!


    2 thoughts on “Pensions and savings revolution! My wishlist comes true

    1. Ros

      Have there been any changes to the life time allowances or BCEs?

      Also, have there been changes to what happens to uncrysallised funds when age 75 is reached?

    2. Hi Ros

      One more question. What does the move to tax lump sum withdrawals at marginal tax rate (instead of 55%) mean for flexible drawdowns?
      Isn’t this now the same thing. If you meet income criteria flexible drawdown allows you to take as much (all if you want) out of your pension pots. It’s taxed as pension income at the MTR taking into account personal allowances.

      Surely, now that you can take your pension pot as a lump sum at MTR, that’s the same thing? Unless it’s only allowed once.

      For example: I have a pension pot. At 65 I retiree, I take 50% as a lump sum and now pay my MTR. Leave the remain pension pot uncrystallised earning investment income. Then in 7 years I take the rest as a lump sum, pay my MTR on that. In the meantime I have the flexibility to go into a capped drawdown with my remaining money if I so choose.

      Why then would I chose a flexible drawdown? It basically does the same thing, but limits my choices with my money (i.e. I can no longer decide to move remainder into a capped drawdown)?

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