Opinion Former Article

Pensioners put in greater control over their own cash

Responding to the Chancellor’s announcement to grant pensioners more flexibility over their pension pots, the Low Incomes Tax Reform Group (LITRG) is pleased that many older people are being given the enhanced ability to use their accumulated savings as they see fit.

Broadly, most people who are not in a defined benefit (“final salary”) scheme will be able to choose how much they want to withdraw from their pension savings each year as an alternative to buying an annuity. Although individuals can choose this option at the moment, there are strict limits on the amounts that can be withdrawn on an annual basis.

As now, 25% of the value of the fund can be taken tax-free, while the balance will be taxed at the individual’s marginal tax rates when it is withdrawn from the pension scheme.

Further, small pension scheme savings may currently be taken as a lump sum up to a value of £2,000 – this is to be increased to £10,000 from 27 March 2014. And the number of schemes that can be taken in this way is to increase from two to three. This forms part of a very welcome overall increase in the limit on pension savings that can be taken as a lump sum (trivial commutation) which has increased from £18,000 to £30,000.

LITRG pensions expert Paddy Millard responded to the increased trivial commutation limit, saying:

“LITRG welcome the improvements in the limits for the trivial commutation of small pension pots to acknowledge the realities of today's pension values.  The ability to receive 25% tax-free and the remaining 75% taxed at their marginal rate will liberate many with only modest pension savings from being trapped into poor annuity rates in the pension company with whom they have saved.  The enhancement of the £2,000 limit on individual occupational and personal pension pots to a more realistic £10,000 will be especially welcome.”

On the draw-down generally, LITRG Technical Director Robin Williamson commented saying:

“The vastly more flexible rules for drawing down pensions without necessarily taking out an annuity should force providers to be more competitive in what they are prepared to offer pension savers. In addition, the pensions liberation industry will take a knock – if savers are able to make better use of their pensions savings when they reach pension age without tax penalty, there will be less temptation to withdraw their funds earlier on pain of losing much or most of it in fees and extra tax.”



Notes to editors:

1.       The Low Incomes Tax Reform Group (LITRG)

LITRG is an initiative of the Chartered Institute of Taxation to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.

2.       The Chartered Institute of Taxation (CIOT)

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 17,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

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