The Government has announced a radical overhaul of pension rules which will mean that from April 2015 anyone over the age of 55 will be able to take their entire pension pot as cash.
Under reforms announced by Chancellor George Osborne today, the overall trivial commutation limit will be increased from £18,000 to £30,000 later this month.
The triviality limit on personal pension pots worth £2,000 will also rise to £10,000, with individuals allowed to take up to three separate pots as cash.
In addition, the flexible drawdown minimum income requirement will also reduce from £20,000 to £12,000, while the maximum income a person in income drawdown can take will rise from 120 per cent of GAD to 150 per cent.
However, these are only interim measures. In a potentially monumental blow to annuity providers, the Chancellor announced that from April next year anyone who is aged 55 or over will be able to take their entire pension fund as cash – although only the first 25 per cent will be tax-free. The remaining 75 per cent of the fund would be taxed at the saver’s marginal rate.
The minimum age people can access their entire fund will rise to 57 from 2028, when the Government plans to link the minimum age to rises in the state pension age.
The Government is also seeking views on whether the minimum pension age should increase further to allow people to accumulate more pension wealth before they reach retirement.
Osborne said: “I am announcing today that we will legislate to remove all remaining tax restrictions on how pensioners have access to their pension pots.
“Pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want.
“No caps. No drawdown limits. Let me be clear. No one will have to buy an annuity.”
MGM Advantage technical director Andrew Tully says: “This is an unprecedented change giving huge flexibility to how pensions are taken. We need to make sure people get help in working out the best way to take a tax efficient and sustainable income.”
Syndaxi Chartered Financial Planners managing director Robert Reid: “This makes A-Day look like tinkering. At long last people are being treated as adults – we just have to hope they behave as adults.”
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