18 Months To Decide Pension Income Option

18 Months To Decide Pension Income Option.

As a follow up to the Chancellor’s far reaching changes to pension flexibility at retirement, the Government has confirmed an additional tweak.

What is not commonly known is that when you take your tax free lump sum from your pension, you then have 6 months to make a decision from that date as to whether you buy an annuity or whether you enter into a capped (an in some cases flexible) drawdown arrangement.  If you do not make a decision and take action i.e. technically “retire” from the pension scheme, the you are deemed as not having retired and the lump sum that you withdrew becomes an “unauthorised payment” and is taxed at 55%.

Given the flexibility proposed, with immediate changes of:

• The Flexible Drawdown secured/guaranteed income limit being reduced from £20,000pa to £12,000pa
• The triviality limit increased for total pensions being taken as lump sums from £18,000 to £30,000
• and the proposals from April 2015 of full flexible pension drawdown with no requirement to buy an annuity for all

The Treasury has confirmed that is will extend the 6 month deadline for unauthorised payment charges to ensure that people are not penalised who are looking to draw their lump sums now but not make their pension ‘income’ decision until the newer flexible rules take effect.  This is to be extended to 18 months.

What does all this mean?  It means that you can take your lump sum today but hold back on a decision for annuity provider or flexible drawdown provider until the new rules come in without facing a 55% tax charge.

Comment

The move makes perfect sense it would be unfair for those that have geared up to retire now, to not be able to access the more flexible retirement options coming in just under a year’s time.