In the Budget 2014, Chancellor George Osborne (pictured) announced greater flexibility in the way employees retiring with defined contribution (DC) pensions can take their savings.
In the future DC members will be able to take their pension wealth as a lump sum, drawdown, or an annuity.
From 27 March the maximum lump sum that can be taken will be increased to £30,000 from £18,000 (See: Trivial commutation limits have also been increased).
The number of small pension pots from which 100% lumpsums can be taken have also been increased to three.
From April 2015 it is proposed that people will still be able to take a tax-free lump sum of up to 25% of the value of the pensions pot (as per current rules), however any cash taken over the 25% tax-free amount will be taxed at the person’s marginal tax rate and no longer at 55%.
Also, from 27 March, the amount the member can drawdown each year will be increased from 120% to 150% of an equivalent annuity (that is, the amount an annuity would have paid out in that year).
In order to be allowed to ’drawdown’ from a pension, DC members will have to be earning at least £12,000 a year. This is down from the current £20,000 a year income limit.
Gail Philippart, principal at Mercer, said that these changes could have an impact on pensions administration.
“If lots of people want to take their money out gradually, rather than all in one go, lots of pension schemes don’t have that facility at the moment,” she added.
“The systems will need developing and/or the organisations that are paying the expenses of the scheme might have to pay more for the administration.”
The age at which they can do this will increase from 55 to 57 in 2028.
Further pension reforms announced in the Budget 2014 are set out in the government’s consultation, Freedom and choice in pensions.