At Tilney Bestinvest, we believe it is important to represent the views of our clients and engage in the development of policy. I am also a charitable trustee for The Association of Taxation Technicians, and I represent the Association on HMRC’s Pensions Industry Stakeholder Forum. I was invited by HM Treasury to join a Technical Working Group to discuss the pension proposals. During the meetings, we discussed a number of themes, including:
A bonus for the Treasury is that April 2015 will see many pensioners take advantage of flexible access, with tax revenues increasing on the resulting higher pension income. We predict some headaches at HMRC as the PAYE system does not lend itself to one-off payments, and expect that many people will find their pensions taxed on emergency codes.
Tax avoidance and evasion is high on HM Treasury’s agenda. It is keen to block opportunities that seek to exploit flexible access to pensions. Without restrictions, those over 55 could simply divert earnings into their pensions, obtain tax relief, and then take immediate benefits with 25% tax free and the balance taxable.
- Following discussion and debate which centred on the importance of encouraging genuine pension saving and introducing proportionate measures, Government has now announced that pension funding will be restricted for those who opt to take advantage of flexible access.
We expect HMRC to introduce powers to block those who seek to find other ways to exploit the rules and to focus on the risk of tax leakage for those who opt to retire overseas.
THE GUIDANCE GUARANTEE
At present, most people will reach retirement and opt to purchase an annuity with their existing pension provider, whether this is suitable or not. With increasing flexibility and choice, a key strand to the reforms is a right to free guidance at retirement, ‘the guidance guarantee.’
Government agreed that independent third parties with no financial self-interest should deliver the guidance guarantee and has now announced that the Citizens Advice Bureau and The Pension Advisory Service will provide the service.
- Guidance will provide information on pension options but will not make any recommendations or comment on specific products. For those that require specific advice they will need to appoint a financial adviser.
THE MINIMUM PENSION AGE
The minimum pension age is currently 55 but this will increase to 57 from 2028. This coincides with the State pension age increasing from 65 to 67 and will remain 10 years below State pension age thereafter.
- Many were in agreement that delaying access is prudent to reflect increasing life expectancy.
- Others, like me, argued that delaying access is counter-intuitive to the policy objective of pension freedom and risks putting people off early pension funding.
Despite some heated debate, the minimum pension age is set to increase. Whilst I like to think I have an influence, you can’t win them all!
Please note that information regarding changes to pension rules is being released quickly. The information provided in this article was correct at the time of posting.
To find out more about how our financial planners can help you please feel free to get in touch with us on 020 3131 6543 to arrange an initial consultation.
The Association of Taxation Technicians is the leading professional body in the UK for those providing tax compliance services and related activities. The Association is an educational charity with over 7,500 members and 5,000 students. The Association draws upon the experience of members who work in private practice, financial services, commerce and industry, government and academia and volunteer to support the charity’s objectives.
This article was previously published on Tilney prior to the launch of Evelyn Partners.