Before embarking on an analysis of the challenges and opportunities to savers in the coming years, it is worth first having a recap and refreshing ourselves of the game changing pension amendments announced in the Budget.
Financial advisers need to quickly acquaint themselves with the nature of these changes and the dates from which they are effective. Advisers should also keep abreast of the scenarios where consultation periods are applicable and where policy has yet to be rubber-stamped (at the time of writing, the consultation is scheduled to run until 11 June 2014 ).
|Nature of Change||Detail||Effective from|
|Changes impacting on capped drawdown||Capped drawdown - The maximum level of income that can be withdrawn under capped drawdown arrangements increased from 120% to 150% of the relevant GAD rate for the client. For existing capped drawdown customers the increased GAD amount will only be available from the next anniversary of the drawdown year.||27 March 2014|
|Changes impacting on flexible drawdown||Flexible drawdown – The prescribed Minimum Income Requirement (MIR) for flexible drawdown qualification reduced from £20,000 to £12,000 per annum.||27 March 2014|
|Changes impacting on trivialisation||The trivial commutation limit will rise from £18,000 to £30,000 and will apply to all. This will allow members over 60, with total pension savings of £30,000 or less, to take out all of those savings as one or more trivial commutation lump sums. Anything in excess of the Pension Commencement Lump Sum will be subject to tax at the client’s marginal rate.||27 March 2014|
|Changes impacting on small pension pots||The amount that can be taken as a taxed lump sum from small pension pots rises from £2,000 to £10,000 and will apply to all payments made on or after 27 March 2014. From the same date the number of small pots that can be taken will rise to three.||27 March 2014|
|Changes impacting on access to maturing pension funds||Anyone over the age of 55 will be able to take their entire pension pot as cash, i.e. there will be no withdrawal limits. From minimum pension age a client will be able to draw as much or as little as they wish, subject to marginal rate tax.||Proposed for April 2015|
|Changes impacting on the minimum age||The Government is also proposing to increase the minimum pension age to 57, from 2028, and to then maintain it 10 years below State Pension Age.||Proposed for 2028|
Budget challenges and opportunities
The most positive news is that this represents a great opportunity for financial advisers to provide valuable retirement income advice to clients. Promised retirement ‘guidance’, in whatever format it emerges post-consultation, is welcome but it will only be able to go so far in terms of what it can do for clients. Many clients will subsequently need and seek out professional financial advice.
The first challenge is for advisers to be able to quickly identify clients who may be impacted by the changes. Adviser businesses will need to study their client base and pick out those clients who might be impacted by one of the six Budget changes highlighted above.