(Updated 6 May 2014)
The 2014 budget brought some major changes for people approaching retirement.
Radical reforms will give people more freedom over how they take their pension fund.
The Chancellor also announced a series of changes to savings, including higher limits and more flexible ISA rules.
If you want to know more about the changes and how they could affect you, read on. You can also share your views on the changes here.
What’s changing now?
From 27 March 2014, the following changes came into effect:
1. If your pension funds from all your schemes total £30,000 or less, you can choose to take them as a lump sum. Before the change the limit was £18,000.
2. You can take up to three personal pension funds of £10,000 or less as a lump sum. This includes group personal pensions provided by your employer. Before the change, you could only take up to two personal pension funds of up to £2,000 each as a lump sum.
If you have pension funds of £10,000 or less in an occupational scheme, you may also be able to take these as a lump sum. Check with your scheme administrator / employer, as it will depend on their pension scheme rules.
For points 1 and 2:
3. If you have capped income drawdown, the amount of income you can take from your fund each year is going up from 120% of an equivalent annuity to 150% of an equivalent annuity.
4. If you have flexible drawdown that allows you to take unlimited withdrawals, you now need a guaranteed annual income of at least £12,000 a year from other sources. Before the change, you had to have an income of £20,000 a year to do this.
I’ve already bought an annuity. Do these changes affect me?
If you bought an annuity within the last 30 days, and you want to change your mind, you can.
If you bought an annuity more than 30 days ago and have not previously taken any action, you probably won’t be able to change your mind. Once you’ve bought an annuity, you can’t usually change it or get your money back. The new rules don’t change that.
Whatever annuity arrangements you have in place should carry on as normal.
I bought an annuity shortly before Budget day on 19 March 2014 and wanted to change my mind?
Like ourselves, many providers will have written to remind customers of their option to change their mind and potentially extend the time they had to do this. You will have needed to contact your annuity provider to let them know if you wanted to do this. If your annuity is with Aviva, the deadline for this has now ended.
I bought an annuity shortly before Budget day and have told you I wanted to change my mind?
The options available are:
We are reviewing all requests received. The time taken to resolve will depend on what you wish to do with your benefits. If you wish to contact us, please call 0800 302 9500.
I’m ready to retire. What happens now?
Your pension company will write to you shortly before your planned retirement date. They’ll outline your options and give you an idea of how much retirement income you can expect with an annuity.
If you’ve heard from your pension company recently, it’s a good idea to get in touch with them to check whether your options have changed. Don’t rely on anything you’ve been told before the budget. If your pension is with us, call us on 0800 046 8406.
How do I know whether I have an occupational or personal pension?
Occupational pensions have a board of trustees, so if you have received communications from the trustees you probably have an occupational pension. Personal pensions are most commonly provided by large insurers, like Aviva.
If you are unsure what sort of pension you have, you can ask your employer.
Where can I find out more?
You can read more about the pension changes in the budget and what they mean for you at www.hmrc.gov.uk/pensionschemes/benefits-reg-pens-schemes.htm
We've also created this useful guidance tool to show you some of your possible options. There are three simple questions to answer www.aviva.co.uk/pensions-and-retirement/retirement-options
What’s changing soon?
The government is planning further changes from April 2015.
Potentially, you’ll be able to take your entire defined contribution pension fund as a lump sum when you reach 55. It won’t matter how much you have in it, or if you have any other sources of income. You’ll normally be able to take the first 25% as tax-free cash, and you’ll pay tax at your marginal rate on the rest.
At the moment, you can usually take up to 25% of your pension fund as a tax-free cash lump sum. But you have to take a taxable income – like an annuity – with the rest.
This change may not apply to defined benefit pension funds, or final salary pensions as they’re more commonly known.
The government is consulting on the detail of the 2015 changes, and we will keep you up to date with developments.
As these new options introduce a lot of new choices, the Government has also announced that everyone will have the right to impartial guidance at retirement. It isn’t clear yet who will provide that guidance.
New ISA rules from 1 July 2014
Other changes to savings
The government is increasing the income tax personal allowance from £10,000 in 2014/15 to £10,500 in 2015/16.
Clive Bolton, managing director Savings and Retirement, says:
“We’ve long campaigned to make sure customers get the best retirement income they can, and we’ll continue to do so. In light of these changes, helping people access the right information and good value products that meet their individual needs is more important than ever.”
In light of these changes, helping people access the right information and good value products that meet their individual needs is more important than ever.”
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