What do the budget changes to pensions mean for you?

13 April 2014

In the recent budget, Chancellor George Osborne promised to deliver greater flexibility and choice in how people take their retirement incomes. Although Retirement Line welcome these developments, the option to withdraw a pension fund as a lump sum, which was essentially built up to provide income, may still not be the right solution for some people. There continues to be a need to secure a regular income to help to maintain your standard of living in retirement.  Some of these changes came into effect on 27th March 2014, with further changes being proposed to take effect in April 2015.

We want to help you understand these changes and how they affect the choices you are making for your retirement income. We’ll start with a summary of the new rules, and then look at how they might affect you.

A summary of the budget changes

Increase to cash lump sum: The value of pension pots which can be taken as a cash lump sum (minus tax) will increase from £18,000 to £30,000. To do this you must have no more than £30,000 invested in your pension pot, or in defined benefit pension schemes. 25% can be taken as tax free cash. You can take the rest as income which is taxed at your marginal rate.

Smaller pension pots: The size of a smaller pension pot that you can take as a lump sum, regardless of total pension investment, increases from £2,000 to £10,000. You can now take three of these, rather than two.

From April 2015: Whatever the size of your pension pot, you will be able to take income from it in any way you wish. This income is subject to pay income tax at your highest rate in that year. After taking up to 25% as tax free cash, you can take your income as either:

• A single lump sum – but this will be subject to income tax
• An annuity
• Drawdown income payments
• A combination of some or all of the above

Click here to see a summary of these budget changes.

Retirement Line are here to help you secure the highest retirement income. Please contact us if you have any questions regarding the budget changes or for a free, no obligation comparison.