Budget: Pension tinkering which went under the radar

Despite not getting top billing in yesterday’s Budget – unlike the bombshell announcements of 2014 – pensions did still feature. David Smith, director of Financial Planning at Tilney Bestinvest, gives readers a run down of some of the Chancellor’s less prominent pension related revelations that may have been missed and offers his own views on the announcements.Under 23 drawdown income rule changeThere has been an inadvertent anomaly in Pensions Legislation resulting in minor dependents’ being prohibited from drawing an income from a drawdown pension when they reach the age of 23. They will now be allowed to continue drawing a pension income post age 23 like other minor beneficiaries. A welcome amendment to an unintended legislation.Changes to Legislation for the seriously illMoving forward pension tax rules will be relaxed so that those that are seriously ill will be allowed to draw a lump sum from their pension scheme even if benefits are already being received, which is not currently the case. Furthermore, any such payments made to those aged 75 or older will be taxed as income rather than at the current unfair flat rate of 45%.Trivial Commutation Lump SumsIt will be possible to pay such a lump sum from a Defined Contribution pension plan that is already in payment. This has not been allowed to date.Salary sacrifice survivesThis is a contractual agreement between an employer and an employee to reduce salary/ bonus in lieu of an alternative benefit; typically a pension contribution. Such an agreement results in National Insurance savings for both the employer and employee and it was therefore widely expected that this practice would be abolished in the year’s Budget. Surprisingly, the Government have confirmed that this practice will continue to be an option for pension funding, thus missing an opportunity to claw back tax.The birth of the pension dashboardThe Chancellor has announced that in 2019 a new digital platform will be launched which will provide details of an individual’s entire pension portfolio. Whilst I admire and support the sentiment, I remain unconvinced that the dashboard will ever come to light; there are simply too many outdated legacy systems still being operated by insurance companies and pension administrators alike.Workplace pension advice allowance going upEmployers are generally unaware that the Government has tried to encourage them to help employees obtain Workplace Pension related advice by allowing a tax and National Insurance free allowance of up to £150 per employee for employer arranged advice. This allowance will be increased to £500 per employee from April 2017, which will hopefully enable lower paid employees to access professional advice.Pensions advice allowanceA new Pensions Advice Allowance has been proposed, which will allow people under the age of 55 to withdraw up to £500 tax free from their Defined Contribution pension savings and use this towards the cost of financial advice. A consultation process will be undertaken in this regard. Hopefully this will become legislation, as too many people are making poor decisions that are materially affecting their retirement lifestyle. The options available at retirement are numerous and complex. Everyone therefore needs to be encouraged to take professional advice; after all, for most, it will be the second biggest financial decision of their lives.

Budget: Pension tinkering which went under the radar

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