On 21st July 2014, the Government published its response to the consultation on Freedom and choice in pensions.
Pembroke Financial Services have digested the report and we believe the most relevant points are:
The guidance guarantee
The Government has proposed a number of fundamental changes to retirement options for individuals with defined contribution (DC) pensions. These include the provision of free impartial guidance to assist people in making the most of their pension savings, also referred to as the ‘Guidance Guarantee’.
The Government wishes to ensure that the guidance is trusted by consumers, and to avoid any potential or perceived conflict of interest. Therefore the guidance guarantee will be primarily supplied by the Pensions Advisory Service and the Money Advice Service, with no pension ‘product’ provider involvement. The requirement for the guidance to be face-to-face has been dropped, with online and phone options added. The cost of the guidance is to be funded by a levy on regulated financial services firms.
The Government has also said it will explore the possibility of bringing together all of an individual’s pension information into one easy-to-read ‘pensions passport’.
Relaxation of annuity rules
Annuities will be allowed to decrease in payment and the current ten-year time limit on guarantee periods will be removed. Any remaining payments in the guarantee period can be paid out as a lump sum where they are under £30,000. The Government also plans to allow lump sums to be taken, provided they are specified in the annuity contract at outset.
Lump sum death benefit tax charge
The Government has confirmed that it wants to reduce the tax rate on lump sum benefits taken on death in drawdown or from ‘uncrystallised’ funds after the age of 75. An announcement of the details will be made in the Autumn Statement.
Normal minimum pension age (NMPA)
This will increase from 55 to 57 in April 2028. Thereafter it will be set at ten years below the state pension age. This change will apply to all pension schemes, except for those of the police, armed forces and firefighters.
‘Trivial commutation’ and ‘small pots’
‘Trivial commutation’ is where you may have an opportunity to take a small benefit as a lump sum.The age at which members of defined benefit schemes will be able to use the trivial commutation and small pots rules will be reduced from 60 to 55.
Please get in touch with your Pembroke Adviser for help.