Pensions, savings and investment

Pension flexibility

From April 2015, individuals will be able to draw down from a defined contribution (DC) pension after age 55, subject to their marginal rate of income tax. There will be no minimum income requirement, as currently applies under flexible drawdown. From the same date, all individuals with DC pension pots will be offered free and impartial face-to-face guidance at the point of retirement. The proposals are subject to consultation.

Income drawdown

Pending further potential changes from April 2015, there are two revisions to income drawdown rules:

  • For pension years starting on or after 27 March 2014, the capped drawdown limit will increase from 120% to 150% of an equivalent annuity.
  • The minimum income requirement for accessing flexible drawdown will be reduced from £20,000 to £12,000 from 27 March 2014, subject to pension scheme rules.

THINK AHEAD - You should review your retirement plans especially if you are close to drawing your pension. The rules are changing very shortly and there will be more reforms in 2015.

Small pots and pension commutation

From 27 March 2014, the size of small individual pension pots that can be taken as a lump sum regardless of total pension wealth will increase from £2,000 to £10,000. From the same date, the number of small pots that can be taken as lump sums will increase from two to three. Separately, from 27 March 2014, the amount of total pension wealth that may be taken as a trivial commutation lump sum will be increased from £18,000 to £30,000.

Pension commencement lump sum: the tax-free lump sum

The pension commencement lump sum - generally 25% of the pension pot - will continue to be available, but there will be consultation on separating the lump sum from the requirement to draw a pension benefit. Any change will take effect from April 2015.

Pension ‘liberation’

From 20 March 2014, HMRC will be given broader powers to prevent pension ‘liberation’, with greater control over the registration and deregistration of pension schemes.

Individual protection

Individual protection 2014 (IP14) will be introduced from 6 April 2014, as previously announced. Individuals with IP14 will have a lifetime allowance equal to the total value of their pension savings on 5 April 2014, subject to an overall maximum of £1.5 million.

Minimum pension age

There will be a consultation on a proposal that the minimum pension age, currently 55, should rise in line with the increase in the state pension age (SPA). However, the intention is that the first increase will not occur until 2028, when the SPA will rise to 67 and the minimum pension age will therefore be 57.

Pensions tax: possible abolition of the age 75 rule

The government will consult on whether the current tax rules that prevent individuals aged 75 and over from claiming tax relief on their pension contributions should be amended or abolished.

THINK AHEAD - Maximise pension tax relief while you still can. The pension annual allowance is cut to £40,000 in April 2014 and the lifetime allowance falls to £1.25 million. Take advantage of the generous carry forward rules and, if appropriate, the new transitional protection options to maximise your retirement provision while you still have the opportunity.

Voluntary national insurance contributions Class 3A

A new class of voluntary NICs, Class 3A, will be launched, as previously announced. The aim is to enable those who reach the SPA before 6 April 2016 - when the new single-tier state pension begins - to top up their Additional Pension record. The start date for contributions will be October 2015 and there will be an 18-month window to make payments. The pricing will be set ‘at an actuarially fair rate’. The maximum additional amount available will be limited to £25 a week.

Qualifying non-UK pension schemes (QNUPS)

There will be consultation on giving equivalent treatment to QNUPS and UK-registered pension schemes. The aim will be to remove the current opportunities to avoid inheritance tax through the use of QNUPS.

Individual savings accounts (ISAs)

From 1 July 2014, ISAs will be simplified with the creation of the ‘New ISA’ (NISA). All existing ISAs will become NISAs. From 1 July 2014, the 2014/15 overall annual subscription limit will be increased from £11,880 to £15,000. All of the new limit may be invested in cash deposits, rather than the current 50%.

NISA investors will be able to transfer their investments from a stocks and shares ISA to a cash ISA. Currently transfers are only possible from cash ISAs to stocks and shares ISAs. There will be revisions to the rules on eligible investments to allow a wider range of securities, including certain retail bonds with fewer than five years to maturity and core capital deferred shares issued by building societies. Peer-to-peer lending will also be an eligible investment. The amount that can be subscribed to a Junior ISA or child trust fund in 2014/15 will be increased to £4,000 from 1 July 2014.

SAVER - The ISA limit will rise to £15,000 in July 2014. So a couple can then invest up to £30,000 in a tax-free plan in cash or shares.

Enterprise investment schemes (EISs) and venture capital trusts (VCTs)

Companies benefiting from renewables obligation certificates (ROCs) and/or the renewable heat incentive (RHI) scheme will be excluded from EISs, SEISs and VCTs with effect from Royal Assent to the Finance Bill 2014. Investments in VCTs that are conditionally linked in any way to a share buy-back, or that have been made within six months of a disposal of shares in the same VCT, will also be excluded from qualifying for new tax relief with effect from 6 April 2014.

Investors will be able to subscribe for VCT shares via nominees with effect from Royal Assent. For shares issued on or after 6 April 2014, VCTs will be prevented from returning capital that does not relate to profits on investments within three years of the end of the accounting period in which shares were issued to investors. From 6 April 2014, HMRC will be able to withdraw tax relief if VCT shares are disposed of within five years of acquisition, notwithstanding the general time limits for making assessments to recover tax.

Seed enterprise investment scheme (SEIS)

The SEIS will be made permanent. The associated capital gains tax reinvestment relief will also become a permanent feature of SEIS, providing relief on half the qualifying gains that individuals reinvest in SEIS-qualifying companies in 2014/15 or subsequent years.

Stamp duty reserve tax (SDRT)

The SDRT charge on unit trusts and open-ended investment companies will be abolished from 30 March 2014. An SDRT charge will remain for non pro-rata in specie redemptions. From 28 April 2014, SDRT and stamp duty on shares in companies quoted on recognised growth markets (e.g. AIM) will also be abolished.