The government announced major changes to the rules for taking private pensions in the Budget on 19 March 2014.
The first changes took effect from 27 March 2014 with further proposed changes set to come into force in April 2015. The 2015 changes are currently under consultation, but the 2014 changes are now law. These allow people about to retire to:
- take total pension savings of £30,000 or less as a lump sum, with up to 25% available tax free
- take up to three small pension pots of £10,000 or less as a lump sum, with up to 25% of each available tax free
- take a capped income drawdown of up to 150% of the equivalent annuity (up from 120%) from the start of their next drawdown pension year
- qualify for flexible drawdown with a lifetime income of £12,000 instead of the £20,000 previously needed.
On 19 March, the government stated anyone with the right to cancel the choice they had made before the Budget could opt for the new rules. Generally, this applies to people who took out an annuity or income drawdown plan in the 30 days leading up to the day of the Budget.
However, in some situations, some people trying to undo the pension they had set up would face tax charges when they changed their minds.
The government has now confirmed that most of the people affected can take advantage of the new rules without suffering unexpected tax charges. You can find the announcement from Her Majesty's Revenue & Customs at www.hmrc.gov.uk/pensionschemes/pensionflexibility.htm.
What we are doing at Aviva?
Eligible customers who may want to cancel but have not yet contacted us: We will extend the cancellation period for you if you chose either a drawdown pension or an annuity in the 30 days before the Budget on 19 March 2014. If this applies to you, you now have until 17 April to change your mind and cancel your choice.
For many people, this is a significant extension of the normal cancellation period of 30 days. However, following the government’s unexpected changes to pension rules, we think this is the right thing to do.
Eligible customers who may want to cancel and who have already contacted us: If you have already contacted us and asked to cancel, we will review your circumstances in light of yesterday's statement from HMRC.
We’ll attempt to find a workable solution that lets you benefit from the new choices available to you. In some cases, this may not be straightforward. For example, where we’ve accepted a transfer of pension funds, it’s possible your previous pension provider may not accept those funds back. Cases like these may take a bit longer to clarify.
We will contact all affected customers shortly to explain their individual options.
Customers who are not eligible to cancel: If you took out their drawdown pension or annuity more than 30 days before the Budget, HMRC has confirmed you won’t be allowed to change your mind and cancel your pension.
We’ll keep you informed
We’ll add updates to the overall situation to our website and will continue to contact customers affected by the Budget changes. If you’re concerned, please check aviva.co.uk.