Freedom and choice in pensions - HM Treasury response

05 August 2014

HM Treasury has issued its response to the consultation on the changes set out in this year’s Budget.

HM Treasury has issued its response to the consultation on the changes set out in this year’s Budget. The main points are:

Flexible access

  • From April 2015, DC schemes will be able to offer members flexible access to their benefits without amending their scheme rules.  DC schemes will not be required to provide an in-house drawdown facility (but can do so if they wish).
  • Individuals will be able to transfer between DC schemes up to the point of retirement if their scheme does not offer flexible access.
  • Individuals with DC AVCs in a DB scheme will only be able to take advantage of the new flexibilities if they are allowed to do so by their scheme rules.
  • The minimum age at which members of DB schemes can make use of the small pots and trivial commutation rules will reduce from 60 to 55.

Annuities

  • Providers can offer new more flexible products, such as lifetime annuities that can decrease during the course of payment and allow lump sums to be taken.  The ten year limit on guarantee periods for guaranteed annuities will be removed.   

Minimum retirement age

  • For most schemes this will increase to 57 in 2028 and then remain at ten years below State Pension Age.

Taxation

  • New tax rules will prevent individuals avoiding tax on earnings by diverting their salary into a pension, receiving tax relief and then immediately withdrawing 25% of the resulting fund tax-free.    
  • Government is considering new options for altering the rate of tax (currently 55%) payable on pension funds held in a drawdown product at death or uncrystallised at age 75.

Guidance guarantee

  • The guidance guarantee will be provided by a number of “delivery partners”.
  • The FCA will have responsibility for setting standards and monitoring compliance.
  • The cost of providing the guidance guarantee will be met by a levy on regulated financial services firms.
  • Contract-based pension scheme providers and trustees of trust-based schemes must “signpost” their customers/members to the guidance service.

DB to DC transfers

  • Transfers from private sector DB schemes and funded  (but not unfunded) public sector DB schemes to DC schemes will still be allowed (other than for pensions in payment).
  • All individuals (other than small pot holders) considering a transfer out of a DB scheme to a DC scheme must take advice from a FCA authorised financial adviser.