Our guide to everything you need to know about the taxation of pensions bill
The Taxation of Pensions Bill went through its second reading on 29 October. This is the legislation which brings in the changes announced in this year’s Budget, which allow members who have reached the age of 55 to take their defined contribution pension savings when and how they choose. This means savers no longer have to buy an annuity at retirement.
What does this mean?
The proposed legislation would come into effect on 6 April, 2015. It introduces more options for DC savers. Schemes will need to communicate these to their members.
Individuals will be able to take their pensions savings in a drawdown arrangement, as a cash lump sum (up to £30,000 tax free, above that taxed at a marginal rate), or as a lifetime annuity.
Schemes and their advisers will need to keep track of any amendments to the bill”
Drawdown funds created after 6 April 2015 are to be known as ‘flexi-access drawdown funds’, and savers will be able to take their cash in as many withdrawals as they wish. However, if they continue to contribute to their funds they will be subject to a new annual allowance of £10,000 unless the amount they take out falls below the cap of 150% of the equivalent annuity.
The Bill introduces some changes for annuities, as well. From April 2015 onwards they may increase or decrease in value, and the maximum ten-year guarantee period will be removed so annuities can still be paid after the member has died.
The Bill has gone through its second reading in the House of Commons and passed without a vote. It will now be considered by a Public Bill Committee before officially being brought into force. Schemes and their advisers will need to keep track of any amendments to the bill as it goes through this process.