The UK Government have just introduced new rules in April which will affect all defined contribution pensions as well as final salary pensions in the years to come.
Most importantly, if you are a British expat and considering moving abroad, this may be your last chance to transfer your final salary pension before the government closes the door.
Why? The government is paying out too much when transferring final salary pensions out. Low interest rates mean that the valuations for pension pots for final salary schemes are very high. The government is worrying about paying out so much liability in the coming years with rising debt in the UK. The government would prefer to keep the pensions in the UK and try to grow its way out of debt, which is controversial itself.
If you have a public final salary scheme, i.e. if you are a doctor, lawyer, policeman, fireman, bus driver or worked in any shape or form in the government sector in the UK, this may be your last chance to transfer your pension. The Inland Revenue are also looking to clamp down on private sector final salary pensions. The government are meeting in Autumn to draft further rules, so this could be the final year for transferring out pensions into offshore pension schemes such as QROPS.
Here are some other changes which can affect your pension:
Capped Drawdown (Income) Limit – The maximum annual capped drawdown pension will increase from 120% of the UK Government Actuary's Department (GAD) rate to 150%.
Flexible Drawdown – You can now take a larger part of your pension as a cash lump sum. As long as you have at least 12,000 GBP per year as income, you can take the rest of your pension. However, you would pay your highest marginal rate of tax on this.
Small Pension Pots – For eligibility purposes, the maximum sum of UK pension wealth will increase from £18,000 to £30,000. You can take this at age 60. The 25% Pension Commencement Lump Sum ('PCLS') allowance which is not subject to UK tax applies and the balance is taxable at the recipient's marginal UK income tax rate.
Trivial Commutation of Small Pots – The limit for the trivial commutation of small occupational pension scheme funds will increase from £2,000 to £10,000 per pot.
Flexible Defined Contribution/Money Purchase benefits – Simplifying rules, so that a UK Defined Contribution pension will be able to draw their entire pension fund as and when they wish from age 55.
Review of 55% lump sum death benefits tax charge – This may be reduced to 40% or less.
Restrictions on transfers from Public Sector Pensions
Possible restrictions on transfers from Private Sector Defined Benefit Salary Related pensions – The Government is concerned that the proposed changes may prompt a significant outflow from Private Sector Defined Benefit pensions to Defined Contribution pensions. They believe "this could have a detrimental impact on the wider economy".
Increased Minimum Pension age – It is proposed that the minimum pension age will increase to 57 by 2028 and rise in line with state pension age increases thereafter.
By Richard Malpass: http://www.qropsspecialists.com/contact