Pension liberation made legal! Image

Pension liberation made legal!

Posted: 06/06/2014

The Government has announced some major changes to the administration of UK tax registered money purchase pension schemes. These changes will impact on the way people plan for their retirement and the future of the UK pensions industry.

  • From April 2015 members of money purchase schemes will be able to access the full value of their pension funds without being required to buy an annuity to secure future pensions income. Currently members can only draw 25% of the amount of their pension fund as cash and must purchase an annuity from an insurance company with the balance of their pension funds.
  • Under these proposals if a member decides to draw more than 25% of the value of his pension fund as cash, then he will pay tax at the marginal rate on this additional amount. This new flexibility will allow members to get their hands on their pension funds in a way that has never before been legally possible under the UK tax framework. 
  • The Government wants to ensure individuals approaching retirement have access to proper financial advice to help them make sensible decisions on their retirement planning. Pension providers will have new duties to offer financial advice. The Government does not want individuals to make rash decisions to spend the value of their pension funds and then rely on the state pension for their retirement income. This change is giving individuals the responsibility to make appropriate decisions and to safeguard their futures. It’s a move away from a nanny state. 
  • There is to be new legislation to make it harder for pension transfers to be paid from final salary schemes to money purchase arrangements. This may cause employers with “gold plated” final salary schemes to consider enhanced transfer value exercises before these changes are implemented. The new flexibility in money purchase arrangements may make pension transfers more attractive to members of some final salary schemes.


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