Monthly Archives: December 2014

Riding the Pension Waves into 2015

Employers, employees and those already receiving pensions were faced by wave upon wave of new pension legislation in 2014 arising from four pension bills, namely The Finance Bill 2014, The Pensions Act 2014, The Pension Schemes Bill (26 June 2014) and The Taxation of Pension Bill.

Understanding the detail continues to be challenging with each piece of legislation impacting the way we can plan our future pension savings.

More Flexibility?

A turning point will come for those looking to take benefits from their money purchase pension savings for the first time post April 2015.   The framework we can look forward to include the following key areas:

Triviality and small pots

  • The minimum age under which payments meeting the triviality and small pots rules reduces from 60 to 55 (or earlier if under ill-health rules).

Flexible Access Drawdown

  • From age 55, most people with a private pension will be able to access their money, and set a level of income withdrawal.

It is important to note that the more you withdraw in the early years, the less you will have available to use to provide income in the future, meaning there is more risk of you running out of money.  Spending your pension carefully and investing wisely will be key.

Flat Rate State Pension

If you are retiring after April 2016, you will receive the new flat rate state pension when you stop working.

  • A full state pension will be at least £151.25 per week.  The actual amount will be set in autumn 2015.
  • You will need to make National Insurance (NI) contributions for at least 10 years to qualify for anything and build up 35 years NI contributions before you qualify for the full state pension (currently this is only 30 years).

Capped drawdown retains £40,000 annual allowance

Anyone already in capped drawdown before 6 April 2015 can continue to make contributions up to the £40,000 annual allowance. This relies upon staying within the capped limit and not accessing the new flexi-access drawdown.

Accessing the new flexibility or designating new funds for drawdown through a separate arrangement may see the annual allowance cut to £10,000. However, designating new funds for drawdown within a capped drawdown plan which is a single arrangement will keep the £40,000 limit.

Passing on your Pension upon Death

Joint Life Annuities and Guaranteed Term Annuities

  • Individuals who die before the age of 75 and have a joint life annuity in place where no payments have been made to a beneficiary before 6 April 2015 will have the assurance that their beneficiary will be able to receive future payments tax free.
  • If death occurs after the age of 75, any beneficiary will receive payments subject to their marginal rate of income tax. Alternatively, the beneficiary will be able to take the remaining equivalent pension fund as a lump sum.

The tax rules will also change to allow joint life annuities to be paid to any beneficiary (currently restricted to a category including spouse, civil partner and financial dependant), thus giving people greater flexibility to pass on their pension wealth, for example to grown-up children. This rule only applies to beneficiaries of those who die before age 75.

The 2014 Autumn statement made no mention about dependant’s scheme pensions.  We need to wait for the Finance Bill 2015 to see if these payments will also be paid tax-free.

Drawdown/Flexi Access Drawdown

  • On death prior to age 75 any beneficiary can inherit some or all of the remaining fund, tax free. The 55% tax charge will be scrapped.
  • Any beneficiary can continue to receive the pension fund as income drawdown, tax free.
  • A spouse or any other dependant will be able to use the remaining income drawdown fund to purchase an annuity.  Income taken from this annuity will be taxable on the recipient on a PAYE (Pay As You Earn) basis.
  • On death after age 75, the current 55% tax charge will be removed.  Any beneficiary may inherit some or all of the remaining fund as a lump sum, or they can keep it within a pension and pay income tax at their highest marginal rate of income tax on the income withdrawn.  If they  take the remaining fund as a lump sum, this will be subject to a 45% tax charge (if taken during tax year 2015/16) and from 2016/17 onwards at the highest marginal income tax rate of the recipient.


Access to the above opportunities are dependent upon a number of factors including the type of pension scheme(s) you hold,  whether or not you are already receiving pension income and how you wish to take your benefits at retirement age.

Not all options will be available from all plans and accessing the above facilities may require the transfer of funds to alternative schemes to deliver your retirement solution.  There may still be changes made to the detail whilst the Taxation of Pensions Bill is currently proceeding through Parliament so implementation will occur after the Bill has become law.

Please contact our advisory team who will be happy to help you further.


Points of View: Falling oil and turmoil in Russia

Disappointing factory data out of China is putting further pressure on the price of oil, which has dropped below $60 a barrel for the first time in more than five years, having already shed $55 in less than six months.

Russia has been hit particularly hard by the fall in oil prices thanks to its heavy reliance on energy exports at a time when it is additionally coping with economic sanctions relating to the Ukraine crisis.  As a result, the rouble has been plummeting and induced action from the Russian central bank to defend it. Indeed, following a further 10% fall on Monday, it has taken the drastic step of raising its main interest rate from 10.5% to 17%. This should help reduce the risks of devaluation and inflation, but sharply tighter monetary policy threatens to accelerate the country’s economic slowdown.

So how should investors react? On the one hand, the falling oil price is supportive of the global economy, fueling prospects that interest rates can stay lower for longer and leaving consumers with more money in their pockets for spending.  On the other hand, the severity of the falls gives rise to concerns that the global economy is set to slow and that turmoil in the likes of Russia can spread.  The short term response of investors has been to focus on the latter, leading a sell-off of risk assets and weak equity markets.  As a result, the FTSE 100 is now trading at six-month lows and all eyes are currently on the next move in the oil price.

Pensioner Bond rates announced

In an attempt to appease the older saver the Chancellor announced in the Budget back in March that he would introduce, through National Savings & Investments, two Special Pensioner Bonds paying “market-leading” fixed savings rates.  The “market-leading” rates have now been announced.

From January 2015 savers aged over 65 will be able to deposit a maximum of £10,000 into a 1-year bond paying a gross rate of 2.8% and £10,000 into a 3-year bond paying a gross rate of 4%. These rates are substantially higher than those currently available from a standard fixed-rate savings bond.

The actual launch date for the Bonds is yet to be announced, but with only £10bn set aside for these products, which is only sufficient to cover 500,000 investors, if all of these investors apply for the full amount pensioners will need to act quickly to secure these rates. Investors can apply through the NS&I website, over the phone or by post but due to the small amount on offer the online approach may be the best way.

The interest earned on the bonds will be paid net of basic rate tax on maturity. As a result non-taxpayers will have to reclaim any tax deducted. The bonds do not pay monthly income and whilst they are designed to be held for the full term, early encashment is possible but with a penalty equivalent to 90 days’ interest.

We believe these bonds offer good value over a relatively short time period, but you will need to be quick to benefit from these rates. As it stands the Government has not said if there is likely to be further issues of Pensioner Bonds but it remains a possibility.

Stocks in Focus: BT

This week I am looking at BT, which is planning to making a comeback to the mobile services market nearly fifteen years after the company spun off its then struggling BT Cellnet business from its main operations. The 168-year-old company dominates the UK’s fixed line telecommunications infrastructure and has thus far been focussing on providing “triple-play” services of fixed telephone, broadband and television.  With fixed and mobile telecoms gradually converging with television and broadband services, though, it makes sense for BT to expand to a “quad-play” offering including mobile services.

The question for BT CEO Gavin Patterson is whether to press on with its own mobile strategy or buy in a business that would provide instant scale.  On this front it was announced last week that the parent companies of O2 and EE have initiated preliminary talks with BT over the possible sale of their UK mobile businesses.  O2, which is owned by Telefonica SA, is the UK’s second largest wireless operator just behind EE, which is owned by Orange SA and Deutsche Telekom AG and has 30 million customers.

Talks are now expected to progress between the various companies and Mr Patterson must now decide whether to go it alone or spend up to £10bn on purchasing O2 or EE.