As the headlines screamed out, there is no doubt Osborne's 2014 budget left the pensions industry reeling.
However behind every headline one should consider the good - giving individuals open access to a pension fund in the hope of encouraging higher saving levels. The bad - for companies the fact this freedom breaks the link for the funds to be used to create income for an individual to actually retire from the business. The ugly - regardless SMEs still have to deal with auto enrolment (AE) impacting businesses both financially and in terms of time.
The impact of the Budget itself is immediate and effects anyone age 54+.
There is a transition period to April 2015. The main amendments include...
- Reducing the flexible drawdown minimum income requirement from £20,000 - £12,000
- Increase in the size of a single pension pot that can be taken as a lump sum, from £2,000 to £10,000 and an increase in the number of pension pots of below £10,000 that can be taken as a lump sum, from 2 to 3
- Increase in the overall size of pension savings that can be taken under trivial commutation, from £18,000 to £30,000
- Increase in the capped drawdown limit from 120% to 150%
But without doubt the Budget ‘biggie' is that from April 2015, those over 55 will now have complete access to their fund at their marginal rate.
This is not good news for employers. Workplace DC pensions are an employee benefit. Employers provide benefits to meet corporate objectives. The point of a DC scheme historically, has been for employers to provide support for their employees in securing a financially stable retirement. This security of income is vital if the employee is to retire, allowing the employer to develop new talent and maintain a productive ‘agile' workforce. The combined effect of the removal of mandatory retirement, coupled with this new flexibility to, is that employees can now effectively spend all of their savings from age 55 without actually retiring. www.barnett-waddingham.co.uk/ae [1] to see how we can help you.