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 pot as cash.
Delivering his Budget speech this week, Chancellor George Osborne said the changes will be “the most far-reaching reform to the taxation of pensions since the regime was introduced in 1921”.
Under interim reforms, the overall trivial commutation limit will be increased from £18,000 to £30,000 from 27 March.
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 rather than the current limit of two.
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, in potentially a huge blow to annuity providers, the Chancellor announced that from April next year anyone 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 2018. The Government will then link the minimum age to rises in the state pension age from 2028.
In addition, the Government is considering reducing the 55 per cent charge levied on funds when a pension saver dies.
Osborne said: “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.”
The announcement saw the share price of annuity specialists plummet, with Partnership falling 55 per cent and Just Retirement falling 36 per cent.
MGM Advantage pensions 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.”
Annuity Direct chairman Alan Higham says: “These changes represent a brave new world for retirement planning and it is right that people should be trusted to make decisions on how to spend their own money.
“This will effectively remove the regulatory bias that exists at the moment which means too many people buy annuities at the wrong time and for pretty poor value.”
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.”