This £10,000 annual allowance will only apply if an individual accesses a defined contribution pension worth more than £10,000.
Individuals can make withdrawals from three small pension pots and unlimited small occupational pots worth less than £10,000, without being subject to a £10,000 annual allowance on subsequent contribution.
The current ‘capped drawdown’ system will be ‘grandfathered’ for those in capped drawdown on 5 April 2015.
This means that those in capped drawdown at this point will not have a £10,000 annual allowance but will have the full annual allowance. However at the point they withdraw more than the capped amount, they will have a £10,000 annual allowance.
The government believes it would be unfair to apply the £10,000 annual allowance to this group of individuals, as they entered capped drawdown without the knowledge that they would be subject to such a rule.
The government will increase the minimum age at which people can access their private pension under the new tax rules from 55 to 57 in 2028. The change will apply to all pension schemes aside from those in the public sector that will not link their normal pension age to state pension age from 2015 – namely for the firefighters, police and armed services.
The government is clear that the 55 per cent tax charge on pension savings in a drawdown account at death will be too high when the new system is established in 2015. The government intends to announce the changes in this year’s autumn statement.
Defined benefit schemes
The government will continue to allow transfers from private sector defined benefit to defined contribution schemes (excluding pensions that are already in payment). The government will, however, introduce two new safeguards to protect individuals and pension schemes.
■ There will be a new requirement for an individual to take advice from a professional adviser who is independent from the defined benefit scheme and authorised by the FCA, before a transfer is accepted;
■ There will be new guidance for trustees on the use of their existing powers to delay transfer payments and take account of scheme funding levels when deciding on transfer values. At present, pension fund trustees have the power to ask the regulator for a longer time to make transfer payments if the interests of the members, or the scheme generally, will be prejudiced by making the payments within the usual period.
■ The government intends to consult on removing the requirement to transfer first to defined contribution schemes for those defined benefit members who wish to access their savings flexibly.
■ The government continues to believe that transfers from unfunded public service defined benefit schemes should be banned (there is not any money there). Transfers from funded defined benefit to defined contribution schemes will be permitted, and safeguards similar to those in the private sector will be introduced where appropriate.
