As set out in the consultation document, the trivial commutation and small-pot rules will continue to apply to defined benefit schemes.
These rules allow individuals to take up to £30,000 of total pension savings as a lump sum, or a £10,000 small pot as a lump sum regardless of total pension wealth. The age at which an individual can make use of these rules will also be lowered from 60 to 55.
These are the biggest changes to pensions for more than 100 years and generally are all positive.
The following are some points to particularly note:
■ The Treasury acknowledges there are circumstances where individuals may find it advantageous to transfer out of a defined benefit scheme (such as debt management, health status or family situation, that is, the transferor is single.) It is, however, very sensible that such transfers will be subject to regulated advice that will highlight the potential disadvantages of such action.
■ Those under the age of 43 should note the proposed increase in the minimum pension age from 55 to 57 in 2028, and the proposal that this will increase further as the state pension age increases.
■ For those individuals in flexible drawdown, the new rules mean there will be an opportunity to make tax-relievable contributions up to £10,000 a year into their pension that was previously unavailable.
■ For those currently in capped drawdown, the ‘grandfathering’ of current withdrawal limits, which if breached will mean a fall in annual allowance from £40,000 to £10,000, will need to be monitored closely by those in this position.
All in all though, three cheers from me for Mr Osborne.
Andy Gadd is head of research at Lighthouse Group
Key points
■ The Treasury has provided further clarification on a range of potential changes announced in the Budget.
■ The government will make a number of changes to the tax rules to allow providers greater freedom to create new and innovative products.
■ The trivial commutation and small-pot rules will continue to apply to defined benefit schemes.
