2014 Budget Summary

George Osborne delivered his fifth Budget on Wednesday 19 March 2014.
Our view

We welcome the changes to the limits on stranded pots and triviality as this will give more flexibility to those with low value pension savings.

We are surprised at the extent of this relaxation, and the removal of all limits which adds another dimension. We look forward to seeing further detail on this and taking part in the consultation on the longer term proposals.

For a defined benefit perspective Royal London Consulting Actuaries give their initial comments on the 2014 Budget.

It includes big changes to private pensions, some of which are coming into effect before the end of next week while other more radical changes are proposed to take effect from 6 April 2015. The consultation will close on 11 June 2014.

Here's our summary of the changes and the consultation with links to Treasury or HM Revenue and Customs if you would like more detail.

Budget

Personal allowances

Annex B of HMRC/HMT - Overview of Tax Legislation and Rates

We already knew that the personal allowance was scheduled to increase to £10,000 from 6 April 2014. The recent trend has been to reduce the limit for basic rate tax so that higher rate tax payers do not benefit from the increase in the personal allowance.

This trend has continued with the Chancellor confirming that the basic rate tax limit will reduce from £32,010 to £31,865 from 6 April 2014.
From 6 April 2015 the personal allowance will increase to £10,500 and the basic rate limit will be £31,785.

Increase in maximum drawdown limit

HMRC - Increasing pension flexibility

For drawdown pension years on or after 27 March 2014 the maximum amount that can be taken as income each year (the GAD limit) increases to 150% (from 120%). This increases the attractiveness of drawdown, although it remains our view that the focus should be on sustainable not maximum income, with financial advisers best placed to help with this.

Increase in the limit for triviality and 'stranded pots'

HMRC - Increasing pension flexibility

On or after 27 March 2014:

  • The triviality limit will increase from £18,000 to £30,000. This will only apply to individuals using triviality for the first time.
  • The 'stranded pots' limit is increased from £2,000 to £10,000. Up to three 'stranded pots' will be allowed from personal pension or stakeholder plans. The number of 'stranded pots' that can be taken from occupational pension schemes remains unlimited.

This means that an individual with personal pensions will be able to take up to £30,000 from 'stranded pots', and an additional £30,000 under triviality from age 60.

Reduction in the minimum income requirement (MIR) for flexible drawdown

HMRC - Increasing pension flexibility

From 27 March 2014 the MIR under flexible drawdown will reduce from £20,000 to £12,000 for those choosing to use flexible drawdown for the first time. This will help individuals who are considering flexible drawdown as they will no longer have to secure such a high level of guaranteed income.

Pensions liberation

HMRC - Combating Pension Liberation Changes to Finance Act 2004

The Finance Bill 2014 will widen the circumstances in which HMRC can refuse to register a pension scheme. These will now include where HMRC believe that the:

  • scheme administrator is not a fit and proper person, and
  • the scheme has been established for purposes other than providing pension benefits.

This is a welcome move which will hopefully help in the fight against pensions liberation, and the poor outcomes for individuals that can be the result.

Pensioner savings bonds

1.173 of HM Treasury - Budget 2014

From January 2015 National Savings and Investments will launch a choice of fixed rate savings bonds for people aged 65 or over. As currently announced these bonds will offer a return of 2.8% gross for a one year bond or 4% for a three year bond. There will be a limit of £10,000 for each bond.

The consultation

Ability to take all defined contribution pension savings as a lump sum at retirement

3.13 to 3.19 of HM Treasury - Freedom and choice in pensions

From 6 April 2015 the consultation proposes that for defined contribution schemes only there will be a new option; to take tax-free cash with the balance as a taxable lump sum. This lump sum would be taxed at the individual's marginal rate.

Financial guidance at retirement

4.10 to 4.14 of HM Treasury - Freedom and choice in pensions

From 6 April 2015 pension providers and occupational schemes will have to offer each defined contribution customer a 'guidance guarantee' at the point of retirement.

This guidance will have to:

  • be impartial and of consistently good quality
  • cover the individual's range of options
  • be free to the consumer, and
  • be face to face.

The Government will seek views on how this duty could be implemented and will make a development fund of up to £20 million available to help get the initiative up and running.

Increase in the minimum pension age

1.12 of HM Treasury - Freedom and choice in pensions

The Government will also consult on raising the minimum age at which individuals can take their private pensions; from age 55 to 57 with effect from 2028. In addition they are proposing that the minimum pension age for private pensions will rise in line with increases to the state pension age (SPA). This would mean the age that individuals could take their private pension always being 10 years below the SPA.

Pension contributions after age 75

P.19 of HMRC/HMT - Overview of Tax Legislation and Rates

At the moment any pension contributions paid after age 75 do not receive tax relief. From 6 April 2015 it is proposed that this rule be amended or abolished. The Government will be consulting on this.

Published 19 March 2014

Updated 8 April 2014

The information provided is based on our current understanding of the Budget 2014 and associated documents and may be subject to alteration as a result of changes in legislation or practice.

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