pension changes today
19 March 2014, 04:29 PM
#2
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I read this as "typically 20%"
13:27:
Mr Osborne says that if people choose to take their pension pot early, instead of 55%, it will be taxed at a normal marginal tax rate - typically 20%.
13:27:
Mr Osborne says that if people choose to take their pension pot early, instead of 55%, it will be taxed at a normal marginal tax rate - typically 20%.
19 March 2014, 05:16 PM
#3
We are still waiting for guidance on this. Even Osborne realises this one's so big he has to run it past the the pensions industry.
Up 'til now the 55% rate would only apply if:
- you died early - your pension pot would be passed on to your relatives after a 55% tax had been applied.
- You paid in more into your pension pot than the max allowed over your lifetime. The surplus money in your pot over the lifetime allowance is taxed at 55%.
In any case, you'd pay no tax on the first £25,000.
But.. bear in mind: Mr O, has also just put a cap on the size of the UK benefit budget. The plan is that no future chancellor will be able to increase the benefit spend without a vote in parliament. So if you drew all your pension money and blew it, the only benefit you'd get for the rest of you life would be a small pitance share of a fixed benefit budget rather (presumably) than what you'd actually need to live on.
Up 'til now the 55% rate would only apply if:
- you died early - your pension pot would be passed on to your relatives after a 55% tax had been applied.
- You paid in more into your pension pot than the max allowed over your lifetime. The surplus money in your pot over the lifetime allowance is taxed at 55%.
In any case, you'd pay no tax on the first £25,000.
But.. bear in mind: Mr O, has also just put a cap on the size of the UK benefit budget. The plan is that no future chancellor will be able to increase the benefit spend without a vote in parliament. So if you drew all your pension money and blew it, the only benefit you'd get for the rest of you life would be a small pitance share of a fixed benefit budget rather (presumably) than what you'd actually need to live on.
19 March 2014, 05:18 PM
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Fantastic news on pensions. Monumental infact 
Well done George O, long overdue, a surprise and finally an end to the daylight robbery and theft from pension providers regarding miserable annuities.You will take out as much as you want and be taxed at your marginal rate be that 20% or 40/45%
Pensions have just come very very attractive for those that have been on the fence about them. Benefit to the government also, the more we withdraw from our pots, the higher their income tax receipts.
Well done George O, long overdue, a surprise and finally an end to the daylight robbery and theft from pension providers regarding miserable annuities.You will take out as much as you want and be taxed at your marginal rate be that 20% or 40/45%
Pensions have just come very very attractive for those that have been on the fence about them. Benefit to the government also, the more we withdraw from our pots, the higher their income tax receipts.
Last edited by LEO-RS; 19 March 2014 at 05:20 PM.
19 March 2014, 05:58 PM
#6
An annuity (a guaranteed income for the rest of your life) is very low risk and is guaranteed for as long as you live, so it pays a low rate.
There are mainstream investements that have returned higher income than an annuity or cash but these carry higher risk of losing your lump sum and they aren't guaranteed to continue paying you 'til you die.
It all depends on what you want and how much risk you want to take.
You would need to take advice. I think that's why Osborne is promising 'free' finanacial advice to all retirees. We'll see.
There are mainstream investements that have returned higher income than an annuity or cash but these carry higher risk of losing your lump sum and they aren't guaranteed to continue paying you 'til you die.
It all depends on what you want and how much risk you want to take.
You would need to take advice. I think that's why Osborne is promising 'free' finanacial advice to all retirees. We'll see.
Last edited by SouthWalesSam; 19 March 2014 at 06:04 PM.
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19 March 2014, 06:23 PM
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As it stands now you can take the first 25% of your pension lump sum tax free. I did it myself two years ago. Don't know whether this will remain though I would hope so.
19 March 2014, 07:20 PM
#13
The first 25% of your pot can be taken tax free. The rest of the money that you withdraw is taxed at the highest rate of tax that you've paid in the tax year you draw the money out:
Basic rate tax payer with £100k pot:
£25k taxed at 0%: £25k - 0 = £25k
£75k taxed at 20%: £75k - £15k = £60k
... giving a total of £85k to invest or spend.
Higher rate taxpayer with £100k pot:
£25k taxed at 0%: £25k - 0 = £25k
£75k taxed at 40%: £75k - £30k = £45k
... giving total of £70k to invest or spend.
Remember if you invest the money you can still buy an annuity later on if you decide you want the security of an income for life.
Last edited by SouthWalesSam; 19 March 2014 at 07:22 PM.
19 March 2014, 07:42 PM
#14
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We are still waiting for guidance on this. Even Osborne realises this one's so big he has to run it past the the pensions industry.
Up 'til now the 55% rate would only apply if:
- you died early - your pension pot would be passed on to your relatives after a 55% tax had been applied.
- You paid in more into your pension pot than the max allowed over your lifetime. The surplus money in your pot over the lifetime allowance is taxed at 55%.
In any case, you'd pay no tax on the first £25,000.
But.. bear in mind: Mr O, has also just put a cap on the size of the UK benefit budget. The plan is that no future chancellor will be able to increase the benefit spend without a vote in parliament. So if you drew all your pension money and blew it, the only benefit you'd get for the rest of you life would be a small pitance share of a fixed benefit budget rather (presumably) than what you'd actually need to live on.
Up 'til now the 55% rate would only apply if:
- you died early - your pension pot would be passed on to your relatives after a 55% tax had been applied.
- You paid in more into your pension pot than the max allowed over your lifetime. The surplus money in your pot over the lifetime allowance is taxed at 55%.
In any case, you'd pay no tax on the first £25,000.
But.. bear in mind: Mr O, has also just put a cap on the size of the UK benefit budget. The plan is that no future chancellor will be able to increase the benefit spend without a vote in parliament. So if you drew all your pension money and blew it, the only benefit you'd get for the rest of you life would be a small pitance share of a fixed benefit budget rather (presumably) than what you'd actually need to live on.
Hi Sam
Is that correct? If I died early would my entire NHS pension pot would be immediately taxed at 55% before being passed onto my wife/kids?
Thanks
19 March 2014, 08:06 PM
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I haven't seen the detailed briefing paper yet but from what I understand [subject to confirmation]:
The first 25% of your pot can be taken tax free. The rest of the money that you withdraw is taxed at the highest rate of tax that you've paid in the tax year you draw the money out:
Basic rate tax payer with £100k pot:
£25k taxed at 0%: £25k - 0 = £25k
£75k taxed at 20%: £75k - £15k = £60k
... giving a total of £85k to invest or spend.
Higher rate taxpayer with £100k pot:
£25k taxed at 0%: £25k - 0 = £25k
£75k taxed at 40%: £75k - £30k = £45k
... giving total of £70k to invest or spend.
Remember if you invest the money you can still buy an annuity later on if you decide you want the security of an income for life.
The first 25% of your pot can be taken tax free. The rest of the money that you withdraw is taxed at the highest rate of tax that you've paid in the tax year you draw the money out:
Basic rate tax payer with £100k pot:
£25k taxed at 0%: £25k - 0 = £25k
£75k taxed at 20%: £75k - £15k = £60k
... giving a total of £85k to invest or spend.
Higher rate taxpayer with £100k pot:
£25k taxed at 0%: £25k - 0 = £25k
£75k taxed at 40%: £75k - £30k = £45k
... giving total of £70k to invest or spend.
Remember if you invest the money you can still buy an annuity later on if you decide you want the security of an income for life.
Annuities have been legalised theft over the last 5yrs or so in my opinion and I feel sorry for anyone that has had the misfortune of retiring in the last 5-10yrs. £100k buys a £4kpa 3% index linked pension for the remainder of your days, it would take a good 20yrs just to break even and that's ignoring the potential investment returns on the original capital also. Considering the average age for a male is 77 on death, I make that minimum 8yrs short. Awful awful value for saving all your days, even if you do leave 50% to spouse, chances are, you're still not getting anywhere near the value you should.
I wonder if its possible to transfer 'final salary' public sector pensions into this new system? The freedom and flexibility may outweigh the advantage of a public sector pension?
Last edited by LEO-RS; 19 March 2014 at 08:46 PM.
19 March 2014, 08:39 PM
#17
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Shaun, I should know but have to admit I get a bit confused.
I actually thought that each child below the age of 18 gets 1/4 as well
19 March 2014, 08:55 PM
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I haven't seen the detailed briefing paper yet but from what I understand [subject to confirmation]:
The first 25% of your pot can be taken tax free. The rest of the money that you withdraw is taxed at the highest rate of tax that you've paid in the tax year you draw the money out:
life.
The first 25% of your pot can be taken tax free. The rest of the money that you withdraw is taxed at the highest rate of tax that you've paid in the tax year you draw the money out:
life.
Still needs clarification I think.
Edit. I get it now. Any money you withdraw is classed as income in that tax year.
Last edited by paulr; 19 March 2014 at 10:25 PM.
19 March 2014, 09:07 PM
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20 March 2014, 03:08 AM
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HELP!!!
I am totally useless with pensions.
Can someone please advise on following:
I have lived for the current tax year in Malaysia and am thus non resident for tax purposes. (will continue to live outwith UK for foreseeable future)
When I lived in UK I was taxed at highest band.
I have various reasonably small pensions in UK which have continued to accrue over the years.
I am NOT reliant on these in future as have a big pension pot from company shares.
Can I now totally cash these pensions in for lump sums and only pay what will probably be lower band tax on overall value? Yes, I am old enough to qualify from that aspect!!
Thanks
I am totally useless with pensions.
Can someone please advise on following:
I have lived for the current tax year in Malaysia and am thus non resident for tax purposes. (will continue to live outwith UK for foreseeable future)
When I lived in UK I was taxed at highest band.
I have various reasonably small pensions in UK which have continued to accrue over the years.
I am NOT reliant on these in future as have a big pension pot from company shares.
Can I now totally cash these pensions in for lump sums and only pay what will probably be lower band tax on overall value? Yes, I am old enough to qualify from that aspect!!
Thanks
20 March 2014, 06:16 AM
#22
20 March 2014, 06:18 AM
#23
20 March 2014, 07:18 AM
#24
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20 March 2014, 11:00 AM
#25
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I do feel the budget and the governments course of action is a little duplicitous.
On the one hand you've got Auto-Enrollment forcing pretty much everyone into a pension scheme because the state scheme isn't enough.
On the other, the rules on taking pension benefits have been all but removed. There will be pensioners who strip out their pension then end up with nothing. You can't just say tough poop, they will need looking after.
Personally I think the pension relaxation has gone too far.
On the one hand you've got Auto-Enrollment forcing pretty much everyone into a pension scheme because the state scheme isn't enough.
On the other, the rules on taking pension benefits have been all but removed. There will be pensioners who strip out their pension then end up with nothing. You can't just say tough poop, they will need looking after.
Personally I think the pension relaxation has gone too far.
20 March 2014, 11:55 AM
#26
The changes apply to 'Defined Contribution' schemes only i.e where you pay in £x or y% of your income in regular payments or ad hoc lump sums and end up with you own 'pension pot'.
The changes do not apply to 'Defined Benefits' schemes like the NHS 'final salary' based schemes. These schemes usually have thier own widows and dependants pensions to cover your relatives if you died early. As far as I'm aware the Budget made no changes to these types of pension scheme.
Edit: In fact in the Budget detail there's a proposal to ban people in public sector pension schemes from transferring their pension rights to a Defined Contribution pot and taking advantage of the new changes.
Last edited by SouthWalesSam; 20 March 2014 at 02:10 PM.
20 March 2014, 12:07 PM
#27
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Edd... They will still be supported by the benefits system the same way they would be now. They will go from having a private pension income + state pension, to just state pension. The state pension amount being enough to survive on as it is now for many millions of pensioners.
It's your money that you've saved all your life for, why shouldn't you have complete freedom over how it's spent/budgeted for? If you want to blow it all within a year and then live the rest of your days on a sole state pension then so be it but the majority will hopefully be responsible and drip feed from their funds.
It's your money that you've saved all your life for, why shouldn't you have complete freedom over how it's spent/budgeted for? If you want to blow it all within a year and then live the rest of your days on a sole state pension then so be it but the majority will hopefully be responsible and drip feed from their funds.
20 March 2014, 12:36 PM
#28
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Edd... They will still be supported by the benefits system the same way they would be now. They will go from having a private pension income + state pension, to just state pension. The state pension amount being enough to survive on as it is now for many millions of pensioners.
It's your money that you've saved all your life for, why shouldn't you have complete freedom over how it's spent/budgeted for? If you want to blow it all within a year and then live the rest of your days on a sole state pension then so be it but the majority will hopefully be responsible and drip feed from their funds.
It's your money that you've saved all your life for, why shouldn't you have complete freedom over how it's spent/budgeted for? If you want to blow it all within a year and then live the rest of your days on a sole state pension then so be it but the majority will hopefully be responsible and drip feed from their funds.
The whole point of an annuity is to ensure you had a guaranteed income for life - whether it be a little or alot. The rates have been hammered for all sorts of reasons, financial crisis and QE being some of them. But the basic idea to provide an income is sound.
Give folk freedom to take what they want and many will. They will not think about whether the income they take is sustainable. Raising GAD to 150% and maxing income under drawdown pension scheme - its going to run out, plain and simple. Let alone allowing someone with a 100K pension pot to strip it out at 20% over a a few years - then what?
To me, it shows a government trying to make the "now" better and stuff the "tomorrow" so many more people will end up reliant on the state. You could argue that group of people would have ended up on the state anyway so they may as well spend it on beer and bingo.
The whole thing just says don't worry about tomorrow, spend it all now.
Last edited by EddScott; 20 March 2014 at 12:39 PM.
20 March 2014, 12:59 PM
#29
Edd... They will still be supported by the benefits system the same way they would be now. They will go from having a private pension income + state pension, to just state pension. The state pension amount being enough to survive on as it is now for many millions of pensioners.
It's your money that you've saved all your life for, why shouldn't you have complete freedom over how it's spent/budgeted for? If you want to blow it all within a year and then live the rest of your days on a sole state pension then so be it but the majority will hopefully be responsible and drip feed from their funds.
It's your money that you've saved all your life for, why shouldn't you have complete freedom over how it's spent/budgeted for? If you want to blow it all within a year and then live the rest of your days on a sole state pension then so be it but the majority will hopefully be responsible and drip feed from their funds.
20 March 2014, 01:59 PM
#30
The plan is that most people will end up with a pension pot or workplace pension of some sort. Auto-enrolment means that everyone who’s employed will have to start to build a pension pot if their employer doesn’t already have a workplace scheme.
At least now you’ll have a choice over what is best for you. You’ll be able to choose an annuity, or leave your pot invested and take a drip feed income, or a combination of both, or leave your pot to your kids without a mega tax penalty or take a full withdrawal and pay the tax upfront.
Yes, it’s good for the industry but mostly because it encourages people to accumulate a decent pension pot because it’s cheap to put money in (every £100 you put in only costs you £80 or £60 for higher rate taxpayers) and now you’re going to have full choice over how you use it at the other end.
In reality though, from 2015 most people will do what most people do now and buy an annuity. The security of a guaranteed income for life is still going to be the top priority for most people.
At least now you’ll have a choice over what is best for you. You’ll be able to choose an annuity, or leave your pot invested and take a drip feed income, or a combination of both, or leave your pot to your kids without a mega tax penalty or take a full withdrawal and pay the tax upfront.
Yes, it’s good for the industry but mostly because it encourages people to accumulate a decent pension pot because it’s cheap to put money in (every £100 you put in only costs you £80 or £60 for higher rate taxpayers) and now you’re going to have full choice over how you use it at the other end.
In reality though, from 2015 most people will do what most people do now and buy an annuity. The security of a guaranteed income for life is still going to be the top priority for most people.