Pensions: the big news is that there is no big news following the March Budget bombshell.
Pensions in payment death benefits now become clearer. The 55 per cent tax charge on payments from ‘inherited pensions’ has gone meaning that those with uncrystallised or drawdown pensions can now pass these benefits on without this charge. However some complexity (and tax take) still remains.
Namely, where an individual is over age 75 when they die the beneficiary will pay marginal rate tax on any income payments, or 45 per cent for lump sum benefits.
The tax relaxation has now also been extended to joint life annuities. This is a clear sign that when George said in March that ‘nobody will ever have to buy an annuity’ he wasn’t trying to suggest that annuities won’t still be the right choice for many approaching retirement.
This change perhaps redresses the balance for those of us who firmly believe that the certainty and guarantees that an annuity provide make it a valuable solution for certain retirees. In the new world, we expect to see retirees using a combination of retirement income solutions to get the income flexibility they require. Indeed, we expect to see a rise in annuity and drawdown blends from next year.
Perhaps more interesting on the ‘inherited benefits’ side was the announcement that there will be an additional Isa allowance for partners equal to the value of that saver’s holdings on their date of death. Another small sign perhaps of the inexorable march of equalisation between the Isa and pensions regimes? Maybe the Chancellor has a roadmap somewhere which he may care to share with us?
Of course, tax relief on contributions still remains a major attraction for pensions savings, particularly given the more relaxed stance on benefits on retirement. No announcement on changes to the tax relief system as yet. Having said this, we have an election to look forward to in 2015, but any continuation of the current political landscape will probably see this area come under the microscope further with a flat level of tax relief widely anticipated.
But I digress…. although no big announcement this time, the Autumn Statement has confirmed many of the things announced back on that unforgettable day in March. Flexible Access Drawdown (FAD), £10,000 Money Purchase Annual Allowance (for those using FAD), transfers from DB to DC still OK (as announced in May).
Opportunities missed? Perhaps not a big deal, but following consultation there will be no concession on the age 75 limit for tax relief on pensions contributions.
The biggest missing piece of the jigsaw in terms of the new retirement landscape from April 2015 remains any further announcement regarding the Guidance Guarantee. Maybe the order books at Lamborghini haven’t been as full as anticipated so the policy makers are comfortable that new freedoms will deliver good customer outcomes. However, we do need clarity around the guidance guarantee to ensure that those retiring have the best possible chance of making the right decisions as they approach retirement.
