George Osborne’s announcement relating to the proposed UK pension reforms has created shockwaves through the industry, particularly for insurers who were formerly able to benefit from the tax regulations which meant that savers were systematically encouraged to invest their available funds into annuities rather than withdrawing lump sums.
This will no longer be the case if the proposals go through in April 2015, meaning that the saver now has the freedom to choose whether they wish to withdraw lump sums for a reason of their choosing such as a holiday, debt repayment or even the purchase of a buy-to-let property for investment purposes.
Immediate Changes
There are changes which have been implemented immediately, and there are those that have been pencilled in for April 2015. The immediate changes include the ability for those with up to £30,000 in untouched savings to withdraw the entire amount and pay no tax on 25% of the total, while the remainder will be subject to income tax at marginal rates.
Other benefits already in place affect those with significant amounts saved. This particular band will be able to draw 3 pensions each worth up to £10,000. This used to be 2 pensions at a running maximum of £2,000.
Those who have a minimum of £12,000 will now be able to benefit form ‘flexible drawdown’ which gives them unlimited access to withdrawals. The savers who use ‘income drawdown’ currently will now be able to take far larger sums as income. Although the exact amounts are yet to be clarified, they are likely to run into the thousands.
Proposed Changes for April 2015
In April 2015 any saver – regardless of the amount saved – will have full access to their pension with the following stipulations:
- Must be aged 55 or over
- First 25% will be tax free
- Remaining 75% will be subject to income tax at marginal rate
- Savers who draw the 25% tax free then have 18 months to decide whether to draw the remainder or invest in annuities
One of the side issues currently demanding column inches is the impact that could be felt by those considering a switch to QROPS, however any reforms to UK pensions must be replicated by QROPS to ensure they fall in line with UK regulations.
Speculation will undoubtedly continue until such times as the consultation period is over and the changes are confirmed, however the impact on QROPS is likely to be of increased benefit to expats considering moving their money to a more beneficial scheme. If the UK pension scheme improves, QROPS benefits improve alongside it.
