Pensions reform

mamba80

I cant stand the Torries but I have to say this is a blinder... allowing the over 55s to withdraw their entire pension pot at 25% tax rate, I believe, is going to have far reaching effects...or so I thought but it appears the new enhanced universal pension will prevent people who buy a yacht or something similar from claiming much in the way of benefits when they are skint.
There is very soon going to be a huge injection of cash into the economy and Cameron could well be on his way back to no10

Having just been made redundant I cant wait until i am 55

florerider

not quite

25% is tax free and the remainder at the relevant tax rate, which is likely to be 40% for most people when added to their other pensions and income.

and it only applies to defined contribution schemes, not most company pension schemes, and not final salary schemes.

Frank Wilson

I can't help feeling that this policy was also a way of saying to the Pension & Annuity providers, "start looking after your customers and give them a better deal"

I personally have saved in a private pension for close to 35 years (never worked for a company who gave a company pension) and I am stashing a considerable amount into it but the annuity quotes are just apalling and getting worse. (And light years away from the initial (let me make a huge comission) projections.

I have to say I would be very tempted by the cash draw down which I don't know the full rules but I think from what the Pensions Minister intimated yesterday, you may be able to draw down gradually over the years thus limiting your tax liability. Whether the companies holding your pot would start putting charges for doing this I don't know.

Maybe this may be a wake up call to look at ways of improving peoples annuities (lowering charges both current and historic perhaps)

florerider

the annuities are set as a function of returns on gilts, I think it is intended to give you the impression that the providers are the rogue and not realise it was a deliberate government decision to reduce the gilt yields through QE.

I think you are right about drawdown, at least that is how it would work for SIPPs.

Wirral_paul

Its still not confirmed that it will all happen next year as they have a year of "consultation" first. Somehow i get the feeling it's all part of the Tories electioneering as from a professional point of view - there's a huge danger of providing too much flexibility.

The rules coming in on the 27th March for the £12,000 income limit for "flexible drawdown" (which is essentially what is being proposed for next year but with a £0 income limit) goes far enough for me.

As Florider says - annuity rates have always been linked to 15yr gilts (although not entirely). As the yields on the Gilts have been low for years - its hardly the fault of the annuity providers (despite what the government might like to suggest) that rates are pretty poor. Drawdown is a good option for those with income and capital available, but as your pension pot essentially remains invested then you're exposed to the losses that can occur. The risks are therefore higher than with an annuity and you risk eroding your pot to nothing if too high an income is taken.

The rules would basically be that you can take the first 25% tax free and then take any level of "income" you want from your pension pot and that gets taxed as per any other income, ie added to any other income and pay tax accordingly at 0% on the first £10k or so, 20% up to £41k ish, 40% up to £150k etc.

PS loads miss out on enhanced annuities which may provide a good option for many - and should continue to do in the future.

sungod

i'm probably still over ten years from retirement, but the prospect of have no choice but to buy an annuity was always something that annoyed me

an annuity is a safe bet by the insurer that on average its customers will die early enough to leave it with a nice profit, i.e. on average it's a bad deal for annuity buyers

this system has been a nice earner for the insurance business, now maybe it'll generate some real competition and improve options for people who saved all their lives

people still have the option to buy an annuity, nothing has been taken away, instead they've been given the right to decide what's best for them

Wirral_paul

You've always had the option to do Drawdown (typically within limits) though.

Now what we need is a nice thread about what bike for someone to blow £10k of their pension on