Pension savings deadline extended
Published on 10 April 2014 04:00 PM
People who have recently taken a lump sum from their defined contribution pension pot have been given extra time to decide what to do with the remainder of their money.
George Osborne's overhaul of the rules on retirement savings mean retirees will now have 18 months, rather than the current 6-month cut-off, to decide what to do with the rest of their savings.
And they will not be at a disadvantage if they decide to avail themselves of the more flexible system that has been introduced.
Existing tax rules state that people have 6 months before they are required to make a decision regarding their pension once they have taken out a tax-free lump sum - either by purchasing an annuity or entering into capped drawdown.
If they do not do this then their lump sum is taxed at 55%.
A result of changes announced in the Budget means that as of April 2015, someone aged over 55 will be taxed at their normal marginal rate if they want to access their pension money.
For most people this rate will be 20% as opposed to the existing 'punitive' rate of 55%.
'Most fundamental pension access change in a century'
Exchequer secretary David Gauke described the Budget announcement as 'the most fundamental change in the way that people access their pension in almost a century'.
He said more than 400,000 people will benefit from the new flexible arrangements following many years of hard work and prudent saving.
'We recognise that decisions people take regarding their pensions are important and take time. This extension to the decision-making period will give people the opportunity to take full advantage of the new flexibilities introduced at the Budget,' he added.
The extension applies to individuals who were in the 6-month period on March 27, the Treasury revealed.
New guidance for businesses
Businesses, meanwhile, have been given new guidance by the City regulator following the shake-up of pensions announced by the Chancellor.
The Financial Conduct Authority (FCA) said firms will need to consider how to treat those customers who are making a decision about their retirement income in the coming year.
It stated that anyone nearing retirement should be given clear information from pension providers about the new rules, in the form of either a reminder letter or 'wake-up pack', so that they are able to make an informed decision.
Copyright Press Association 2014