3 October 2014

Even More Pension Flexibility

"Death Benefits" doesn't sound like an interesting subject, but apparently the Chancellor disagrees and thinks it could be a vote winning one!

He didn't call it that, of course, but in his conference speech this week focussed on the removal of the very high 55% pension tax charge. That is currently applied if you die with a sum still in your drawdown pension, for example, before your family gets the remainder.

The details are still to be finalised (as are the details from the Budget earlier in the year) but the headline change is that there will be more circumstances where your chosen beneficiaries will receive the value of your pension tax-free. And those chosen beneficiaries no longer have to be financial dependants in most cases into the bargain.

Although the new rules will apply from next April to annuities as well, it is only the "value protection" features of annuities which will change - that's the feature which returns the value of your annuity purchase less the income you've received already, which will be tax-free in future.

So most of the benefit of the new rules will apply to pension drawdown plans. Whether you have started an income or not, the value of the pension will be paid out to beneficiaries tax-free if you die before age 75. After 75 tax will still be due, but at a lower rate than 55%. And the withdrawal of the pension's value can use the new pension flexibilities announced in the Budget, rather than having to take a restricted income.

With the ever-increasing level of flexibility available in pensions, their attraction as a tax-efficient means of saving for retirement is also increasing.

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