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More Pension Freedoms To Be Set Out By Treasury

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You'd almost think house prices are starting to fall again...

The Treasury is to give savers more freedom over how they take a tax-free lump sum from their pension pot.

Under current rules, from the age of 55 people can take 25% of pension savings as a tax-free lump sum.

But in future savers will be able to dip into their pension pot when they want, and each time 25% of what they take out will be tax-free.

More details of the new arrangements are due to be set out to Parliament later on Tuesday.

BBC personal finance correspondent Simon Gompertz said: "It's long been a bedrock of pensions that a quarter of the money saved can be taken tax-free, the rest used for a taxable retirement income - usually an annuity.

"In the Budget, Chancellor George Osborne promised pension freedoms from April next year - much more scope to use the pension pot as people see fit and no need to get an annuity.

"But there was still a question about whether they would have to take their tax-free lump sum all in one go," he said.

'Free to choose'

The new arrangements will be in a Taxation of Pensions Bill to be published later on Tuesday.

Ahead of the publication, Chancellor George Osborne said: "People who have worked hard and saved all their lives should be free to choose what they do with their money, and that freedom is central to our long-term economic plan.

"From next year they'll be able to access as much or as little of their defined contribution pension as they want and pass on their hard-earned pensions to their families tax free.

"For some people an annuity will be the right choice whereas others might want to take their whole tax-free lump sum and convert the rest to drawdown.

"We've extended the choices even further by offering people the option of taking a number of smaller lump sums, instead of one single big lump sum," Mr Osborne said.

'Popular' move

Pensions expert Dr Ros Altmann said the government's changes have the potential to help millions of pension savers make better use of their pension funds.

"Being free to access their money freely as they need to, rather than being forced to buy particular products, will be very popular, however people need to know that their pension provider will allow them to take advantage of the new freedoms," she said.

But she added: "Currently, most pension companies are not ensuring that their customers can take money out flexibly. I call on the industry to make sure that people can really benefit from the new pension changes as quickly as possible.''

The government announced earlier this year that about 320,000 people would get the freedom to access pension pots flexibly without being hit with punitive tax rates.

Individuals will also be able to pass on their unused defined contribution funds to a nominated beneficiary when they die, rather than paying the 55% tax charge which currently applies.

http://www.bbc.co.uk/news/business-29606672

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Okay so everyone withdraws their pensions and bids FTB properties even higher.

Then what? Live off the state pension and the labour of your tenants? What if it all goes wrong and the rental income dries up - do we end up with a nation of starving pensioners too senile to sign an AST?

What about when the tenants come to retire? Will they, having paid most of their income to the previous set of pensioners through rent, have pension pots sufficient to buy BTLs of their own? Where will they live, with no paid-off house?

Since the government appears to want to phase out the state pension I'm not sure what they'll do with those who fritter away their private pots. It all seems very short-sighted. An entire economy based on a generational pyramid scheme rather than any kind of real wealth creation.

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Because they are asking those with little to save more, they need those that have saved more to spend more, so have now allowed them to do so.....a short-term recovery for short-term politics.

When it is gone, it is gone...the only problem it what else can you do with it when there is nowhere else to put it for now. ;)

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Since the government appears to want to phase out the state pension I'm not sure what they'll do with those who fritter away their private pots. It all seems very short-sighted. An entire economy based on a generational pyramid scheme rather than any kind of real wealth creation.

Two side to this:

i) Yes, we have seen the govt of all persuasions very keen to follow short term policies to fluff short term consumption - student debt and borrowing, general debt, now early release of pension funds, oh and the failed equity release for the aged which they have been trying to get going for years.

ii) Having thoroughly manipulated the interst rates annuities are not going to buy any sort of liveable pension for many. With the returns elsewhere, neither will any other use of the money absolutely reliably, apart from maybe paying back debt.

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Because they are asking those with little to save more, they need those that have saved more to spend more, so have now allowed them to do so.....a short-term recovery for short-term politics.

Spot on.

Problem 1: People aren't saving enough for retirement

Government Solution 1: Auto-enrolment

Problem 2: People aren't spending enough to sustain demand in the economy

Government Solution 2: Any-time pension withdrawal

Brought to you by the joined-up thinking society.

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Spot on.

Problem 1: People aren't saving enough for retirement

Government Solution 1: Auto-enrolment

Problem 2: People aren't spending enough to sustain demand in the economy

Government Solution 2: Any-time pension withdrawal

Brought to you by the joined-up thinking society.

Problem 3 - 1.4 trillion public sector (declared debt) and rising, but now anytime withdrawals equals tax planning and avoidance by spreading withdrawals over different tax years as opposed to withdrawing the lot.

Edited by crashmonitor

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Problem 3 - 1.4 trillion public sector (declared debt) and rising, but now anytime withdrawals equals tax planning and avoidance by spreading withdrawals over different tax years as opposed to withdrawing the lot.

Are you suggesting the unfunded pension "pots" of the Public sector are also available for withdrawal?

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Are you suggesting the unfunded pension "pots" of the Public sector are also available for withdrawal?

Wouldn't surprise me if George only allowed it for defined contribution schemes i.e. if you want to withdraw from a defined benefit (DB) scheme, you first have to transfer it to a DC scheme. It just so happens that this also transfers the DB risk from government.....pretty smart if true

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If you are 55 then you will be able to put all taxable salary into pension via a sacrifice scheme, then withdraw it the day after (ignore paperwork delays).

Due to the tax-free bit, you pay 25% less income tax. You also avoid NI completely and get to recover employer NI.

So they are letting you treat it like a bank account. But this means you can "hide" savings for benefits and bankrupcy purposes.

Correct?

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COsborne will find a way to take the money from you.

Perhaps via care home fees out of your lump sum, or other means tested benefits, perhaps even the state pension. He's sneaky like that.

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COsborne will find a way to take the money from you.

Perhaps via care home fees out of your lump sum, or other means tested benefits, perhaps even the state pension. He's sneaky like that.

But the above case is when you are still working e.g. 55 to 65.

There are limits per year (£40K?) but it looks like a massive dodging opportunity.

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If you are 55 then you will be able to put all taxable salary into pension via a sacrifice scheme, then withdraw it the day after (ignore paperwork delays).

Due to the tax-free bit, you pay 25% less income tax. You also avoid NI completely and get to recover employer NI.

So they are letting you treat it like a bank account. But this means you can "hide" savings for benefits and bankrupcy purposes.

Correct?

It might also mean that pension savings are available for the Official receiver in the case of Bankruptcy.

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>Under current rules, from the age of 55 people can take 25% of pension savings as a tax-free lump sum.
>But in future savers will be able to dip into their pension pot when they want, and each time 25% of what they take out will be tax-free.

Does that imply the 25% tax-free lump sum has now gone? That would be a big change.

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>Under current rules, from the age of 55 people can take 25% of pension savings as a tax-free lump sum.

>But in future savers will be able to dip into their pension pot when they want, and each time 25% of what they take out will be tax-free.

Does that imply the 25% tax-free lump sum has now gone? That would be a big change.

isn't 25% of one lump sum the same as 25% of multiple lump sums? :unsure:

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Surely this means the Pension companies will have to completely revise their investment strategy ?

How will they calculate how much cash will be needed to pay out to people who will retiring in the next 6 months ?

Does it mean more volatility in equities ?

I'm not worried because I'm sure HMG will have taken advice on the long term prognosis for this policy....

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If you are 55 then you will be able to put all taxable salary into pension via a sacrifice scheme, then withdraw it the day after (ignore paperwork delays).

Due to the tax-free bit, you pay 25% less income tax. You also avoid NI completely and get to recover employer NI.

So they are letting you treat it like a bank account. But this means you can "hide" savings for benefits and bankrupcy purposes.

Correct?

Higher rate tax relief has to be toast under this proposal.

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I'm seriously thinking about when to renounce my british citizenship. Pretty sure at some stage the economy is going to be SO fecked after stuff like this they'll do a USA and come after our worldwide assets and income even if we live overseas

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isn't 25% of one lump sum the same as 25% of multiple lump sums? :unsure:

Many people plan to live of the initial lump sum until the state pension kicks in. In my case, I would use it to pay off the mortgage early.

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Wouldn't surprise me if George only allowed it for defined contribution schemes i.e. if you want to withdraw from a defined benefit (DB) scheme, you first have to transfer it to a DC scheme. It just so happens that this also transfers the DB risk from government.....pretty smart if true

I think additional voluntary contributions are the opposite in a DB scheme. I think these additionals may be DC ? So yeah it will be interesting if this converts the DB into DC.

This is clearly not advice.

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