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Govt to create new pension withdrawal option

Pension schemes will be able to pay ad hoc lump sums from members’ pots without the saver having to move into drawdown or buy an annuity, under proposals put forward by the Treasury.

The draft Taxation of Pensions Bill, published this afternoon, will allow scheme members to take a portion of their pot – with 25 per cent tax free and the rest liable to income tax – as an “uncrystallised funds pensions lump sum”.

These withdrawals would not force the member to allocate the remainder of their savings to a drawdown vehicle or an annuity within six months of taking their tax-free lump sum.

HMRC says: “From 6 April 2015, if you want to access some or all of your money purchase pension savings without first designating funds as available for drawdown, you can have an uncrystallised funds pension lump sum.

“Normally one quarter (25 per cent) of the amount paid will be tax-free, with the remainder taxable as pension income. You can not also have a pension commencement lump sum in connection with an uncrystallised funds pension lump sum.”

Towers Watson senior consultant David Robbins says: “The Treasury has said if schemes do not want to offer a full drawdown facility they don’t have to. This is a sort of half way house that they can offer.”

MGM Advantage pensions technical director Andrew Tully adds: “An occupational scheme might not want to set up drawdown but if someone comes in and says they want to take £10,000 today, this will allow them to do it.

“It will make life easier for some schemes.”

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Does this mean the end to drawdown plans???

  2. I suspect this is simply an administrative issue to enable pensions which don’t have segmentation to do this. As always however, the devil will be in the detail.

  3. What’s the betting that there is more to this than meets the eye ?

  4. It is obvious from all the “pensions liberation hype” that there is a considerable appetite for people to access their pensions early when they have cashflow problems. The government therefore wants to make sure they get their slice of the pie in these circumstances. To be honest it is a win-win situation for everyone I think.

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