Recent Changes Shake Up Pensions in the UK
On 19th March 2014 the Chancellor of the Exchequer gave his budget that signaled a raft of changes that will have significant impact on expatriates that have retained pension benefits in the UK.
The changes which have been branded the ‘liberalisation of pensions’ came into effect from 27th March 2014 and will provide transitional changes prior to the big shake up which is due to happen in 2015, subject to industry consultation. The transitional rules permit greater flexibility on way in which benefits can be drawn from a pension by increasing the level of income that can be taken from a fund in retirement and also by increasing the minimum fund size whereby the entire fund can be taken as a lump sum, known as triviality.
However, from 2015 the Government has proposed that anyone that holds defined contribution pension benefits can access their entire fund as a lump sum similar to superannuation rules. This means that there is no longer a necessity to secure income with the remaining 75% of the pension fund that cannot currently be taken as a lump sum.
Paradoxically, whilst this may be seen as a major coup for many UK expatriates with retained pension benefits in the UK, the Government has also confirmed that it intends to introduce legislation to remove the ability to transfer pension benefits out of a public sector defined benefit schemes such as the NHS, Police or teachers pension scheme. This will prevent members from benefiting from the new rules as their pensions will be paid as per the existing scheme rules. This will also impact members considering overseas pension transfers.
In addition to this, there is also consultation as to whether the personal allowance (the amount of income that can be earned tax free, currently £10,000) should be removed for non UK residents. This could have a detrimental effect on many overseas pensioners as their entire income would become subject to income tax at marginal rates. Therefore, whilst many of the proposed changes to the pension landscape appear to be enhancing and liberalising pension savings, there are many important factors to consider for expatriates that intend to stay and retire in Australia.
UK Pensions Specialists
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