ACCA’s head of taxation, Chas Roy Chowdhury, says that the changes announced today about tax and defined pension contribution schemes, otherwise known as money purchase schemes, will give much needed options to people about when and how they want to access their pensions savings.

Chas Roy Chowdhury comments: “The idea is to bring in tax changes around this from 2015. Under the new system, people will be able to access their defined contribution savings from the age of 55 in all circumstances, rising to 57 in 2028.

“It will mean that individuals can withdraw money from their defined contributions pot after the age of 55 as and when they wish and only pay their marginal rate of tax on it (0, 20, 40 and 45%). They no longer need to buy an annuity. They can structure withdrawals so that they minimise any tax charge. This will also impact Additional Voluntary Contributions (AVCs). People can also still choose an annuity if they wish.

Calculator pen and tablet (PD)“As a result of this change, the Treasury could make several billions of pounds in additional revenue, especially in the short term where it is anticipated that people will bring forward their withdrawal from their pension pot and hence a tax charge. Some commentators think that in the long term, these impacts will reverse and could actually cost the government more. The 25% tax free lump sum will still exist.

“However, ACCA believes that this move puts the individual in control of their money, especially if the proposals for collective schemes take off as more people will have larger funds to access. The government is still rightly consulting on the details and ACCA will contribute to those discussions. But importantly, as always with a potentially life-changing financial decision you should consult a qualified professional to advise.”

Mark Wood, CEO at JLT Employee Benefits, said:

"The Queens Speech has confirmed the DWP’s intention to introduce a hybrid form of Pension Saving available.

Defined Ambition is a difficult concept. While investment returns and life expectancy conform with expectations, the system brings some benefit. Outside these norms, as we have seen in Holland, the system breaks down. Defined Benefit pensions depend on the corporate sponsor’s covenant but for the majority have proved reliable. Annuities protect the individual from investment risk and living longer than expected. Defined Ambition gives no such guarantee."

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