Major changes for UK pensions were announced in this week’s yesterday’s UK budget. Here is the link to HMRC.
Our UK associate, Paul Bradley, prepared an outlined of the changes and what they mean for you:
1). The government has announced the retirement age, for accessing private pension savings without a tax charge, will rise from 55 to 57, to reflect increases to the state pension age, although not until 2028.
This is particularly relevant to people transferring pensions to Canada as their is a link between the UK and Canada and withdrawals are reported back to the UK.
If withdrawals are made which would not be allowed in the UK (I.e. Income before age 57 from 2028) AND the person making the withdrawals has been outside the UK less than 5 complete tax years there are UK tax penalties which could be applied.
2) “Capped drawdown limit increased to 150% of GAD”
It sounds like jargon, but in the UK the income you can draw from a pension is restricted by the Government. This simply means the limits are being lifted.
In this budget the Chancellor has relaxed the rules, but they remain more restricting than Canada.
Furthermore you would need to consider currency risk (the impact of a falling GBP vs the CAD) and the interplay of taxes between Canada and the UK; it’s all quite complicated!
2) The government has increased the size of pot that can be cashed in at retirement to £30,000 from the current £18,000.
The government currently allows people over 60 years old with total defined contribution pension savings worth less than £18,000 to take their entire pots as cash. This is known as trivial commutation.
The Treasury said: ‘From 27 March 2014, the government will allow people with defined contribution pension wealth more flexibility to access their savings by increasing the total pension wealth that people can have before they are no longer entitled to receive lump sums under trivial commutation rules to £30,000, subject to their pension scheme rules.’
This change is relevant to people who are over 60 with £30,000 or less in UK pensions (combined). If a pension is taken this way in the UK, 75% of the fund is subject to tax.
3. The government has abolished the 55% tax on pension withdrawals at retirement, meaning no one will have to buy an annuity.
From April 2015 people will be able to access pension savings as they wish at the point of retirement, subject to their marginal rate of income tax, rather than the current 55% charge for full withdrawal.
What you should do
If any of these changes are relevant to you, or your friends and family get in touch for a free consultation to help you make an informed choice.
We are the only advisors with expertise (Chartered Financial Planner) in the UK and expertise (CFP) in Canada.