The Chancellor announced major changes to the taxation of defined contribution (DC) pensions in his speech. Some of these, including an increase in the amount that those with small pension pots can take as a lump sum to £10,000, take effect from 27 March 2014.
Other, more far-reaching changes to DC schemes will be introduced from April 2015. These include the removal of the requirement to purchase an annuity, and the abolition of the 55% charge on withdrawals over the tax-free lump sum. Instead, any withdrawals over the tax-free limit will be subject to income tax at each taxpayer’s marginal rate. This will be accompanied by the provision of “free and impartial face-to-face guidance” to help individuals decide how best to take their pension. A consultation paper giving more detail on the changes (and including a section on how the changes will affect defined benefit schemes) has been published, with the Government asking for comments by 11 June.
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