Adam Wareing of Sale based adviser firm, Your Wealth Management, looks at the effects of the budget on pensions

THIS year’s budget saw the introduction of one of the most radical overhauls of pension rules for over a century which will mean that from April 2015, anyone over the age of 55 will be able to access their pension fund without being tied into an annuity.

People will have much more flexibility over how and when they can access their pension savings. This means they can decide to take their pension fund as a lump sum, taxed at their marginal rate of income tax (0%, 20%, 40% or 45%) or access more traditional products such as annuities or income drawdown. Currently there is a 55% tax charge where the full lump sum is taken.

As a first step towards this reform, the Budget introduces a number of immediate changes, to allow people greater freedom and choice now over how to access their defined contribution pension.

From March 27, 2014 the government will:

• increase the overall size of pension savings that can be taken as a lump sum, from £18,000 to £30,000

• reduce the amount of guaranteed pension income people need in retirement to access their savings flexibly, from £20,000 to £12,000

• increase the capped drawdown limit from 120% to 150% to allow more flexibility to those who would otherwise buy an annuity

• increase the size of a single pension pot that can be taken as a lump sum, from £2,000 to £10,000

• increase the number of pension pots of below £10,000 that can be taken as a lump sum, from two to three

It is a staggering change to the pensions market - and culture - in the UK. While it makes pensions more flexible, the responsibility for not running out of money is shifted from the government to the individual.

To recognise these changes, the government is also set to introduce a new guarantee that everyone who retires with defined contribution pension will be offered what it calls ‘free and impartial face-to-face guidance’ on their choices at the point of retirement.

Who will be providing this ‘right to advice' scheme? Providers and trust-based pension schemes, that's who. The government has said it will make available up to £20m to providers and schemes over the next two years to develop this initiative.

Chancellor George Osborne said the changes have implications for defined benefit pensions, and that the government would consult on this in the near future.

Key points

From March 27, 2014:

• pension savers (over age 60) with less than £30,000 will be able to access their pension fund as a taxable lump sum; the first 25% is tax free.

• The amount pensioners can withdraw under income drawdown plans will increase by 25%.

• The amount of secured income required for flexible drawdown will reduce from £20,000 to £12,000.

From April 2015:

• The above interim measures will be replaced and all pension savers (over age 55) with funds under £1.25m will be able to access their pension as a taxable lump sum; the first 25% will be tax free

• Savers will still be able to access traditional products such as annuities and income drawdown plans • The lifetime allowance and annual allowance will remain in place.

• The government will consult to reduce the 55% tax charge on lump sum death benefits to ensure it remains appropriate.

• Savers in defined contribution pensions will benefit from free and impartial face to face guidance at the point of retirement. We are not yet sure what form this will take.

• No transfers will be allowed from public sector DB schemes to DC pension schemes. Private sector DB schemes will be free to decide whether to adopt such controls.

Should you wish to discuss any of the above in more detail you can call Adam Wareing on 0161 962 4639 or email adam@yourwealthmanagement.co.uk *Sources: Money Marketing, BBC News, IFAonline.