Death and (Pension Drawdown) Taxes

Further good news in relation to the above was confirmed in the recent Government’s response to the “Freedom of choice in pensions” consultation following the 2014 Budget. 

 

To give a little background, at present when people utilising pension drawdown (or those who are over 75, not in drawdown but have “uncrystallised” pensions) die, the residual “pot” is taxed at 55% - the only exception being when the fund is used to purchase an annuity for the spouse or the spouse carries on with income drawdown.

 

In their response to the consultation, unsurprisingly, the Treasury has acknowledged that a rate of 55% might be “too high” and “needs to be changed”. This mirrors something that financial planners have felt since the rate was raised from the previous tax of 35%.  Interestingly, however, as this is a relatively complex and sensitive area, confirmation of the rate is not due until the Autumn statement, and will not take effect until 2015. 

 

Perhaps more interesting is the speculation within the industry (and within the adviser group at BROADSTONE) of what the new rate will be.  We haven’t got to the point of running a sweepstake, but popular opinions in the office include a parity with Inheritance Tax (40%), perhaps charging the pension fund to the individual pension holder’s marginal income tax rates or a return to the days of 35%.  The outlier is speculation that perhaps the Government will look to allowing wealth to truly span the generations, and maybe allow family members to effectively inherit the pension fund into their own pensions.

 

It will be fascinating to see the final detail of this in the Autumn statement (and see which of the office predictions were right).  One thing that everyone will be pleased about is that from next year 55% tax will no longer apply.

 

Duncan Wilson

Private Client Partner

 

Telephone: +44 (0)20 7893 3456

Email:  getintouch [@] broadstoneltd.co.uk

 

A rethink on ‘face to face guarantee’ for pensions advice

There has been a lot of news and comment in relation to pensions in the last few days. Yesterday, the Government published a response on the “Freedom and Choice in Pensions” consultation.

 

Not only has the Government put more detail into their plans on how they intend to deliver the “free and impartial” advice to those people at retirement looking to draw their pensions, there has also been comment regarding some of the potential product innovations that we could see in the coming years.

 

Turning first to the “free and impartial” advice.  It is now clear that the Government is not going to look to the big insurers (with the biggest pockets) to fund the advice.  Whilst this might have been an obvious route for them, there were questions about the “impartiality” of those looking to sell products, who would therefore have a vested interest, advising those looking to retire and needing assistance with their choices.  With this in mind, it looks as though the financial planning advice will be driven through the Money Advice Service and The Pensions Advice Service who will direct pension savers to “retirement guides”.  This approach seems to be sensible and pragmatic.  However, it is clear that there has been a rethink of the guarantee of free “face to face” advice.

 

At the current time the detail on the guidance that will be received and what savers should expect from their guidance provider is still unclear.  However, the complex decisions that need to be made at retirement along with the expanding horizon of products and choices that are likely to be available, we would expect that a large majority of pension savers will still be recommended to seek face to face advice.

 

Duncan Wilson

Private Client Partner

Telephone: +44 (0)20 7893 3456
Email:  getintouch [@] broadstoneltd.co.uk