2014 Autumn Statement: Update on Pension Changes

The Chancellor’s 2014 Autumn Statement confirmed that the pensions flexibility measures initially unveiled in the 2014 Budget and further announcements made in September 2014 will come into effect on 6th April 2015.

As a result of these new measures, the 55% ‘death tax’ applying to pension funds will be abolished and a new regime will be introduced in its place, which will tax pension death benefits in the following manner:

If a member dies before reaching the age of 75, his/her beneficiary may choose to receive the death benefits as a lump sum or through ‘flexible access drawdown’. No tax will be charged on a lump sum and no income tax will be charged on withdrawals from a ‘pension beneficiary drawdown account’. These rules will apply regardless of whether the funds were crystallised or not during the member’s lifetime.

If a member dies having already reached the age of 75, the beneficiary can either draw down on the pension and pay income tax at their marginal rate or take a lump sum subject to a 45% tax charge (although the beneficiary’s marginal rate is expected to apply from 2016/17).

In addition, the new measures provide that pensioners who purchase annuities after April 2015 will be able to choose any beneficiary to receive their pension when they die, including their children or grandchildren.  Unfortunately, it will not be possible to amend ‘joint life’ annuities existing before April 2015 to achieve the same result.

For advice on the taxation of pension death benefits please contact the partner at Hunters having responsibility for your legal matters, or, for new enquiries, contact a member of the Private Client team.