The Budget speech on 19th March announced some major changes affecting pensions in the future.
The biggest change will take place in 2015, when the intention is to remove the requirement which currently exists under a defined contribution (DC) pension scheme to buy an annuity (a bond which is guaranteed to pay out a fixed income for the rest of a person’s life, regardless of how long they live) with the pension pot that builds up in a DC scheme. This means that when they come to retire (after age 55), DC scheme members will be able to cash in as much or as little of their pension pot as they want, with some tax implications.
The Pensions Office has had some queries from pensioners – and members with a deferred pension – about how this affects them and whether they can now “cash in” their pension. As the changes will only affect those with a DC pension, the answer is that for Coats Plan members, there is no change. Members of a defined benefit (DB) Plan like ours do not build up a “pot” of money, their pension is based on their service and salary. In any case, this change will only affect those whose pensions aren’t yet drawing their pensions. Similarly, the announcement made about changes to ‘drawdown’ also applies only to DC pensions.
The other change relates to trivial (small) lump sum limits, and this may have an impact on the options available to Plan members. We are waiting for formal guidance from our advisers, which will follow further clarification from the Government. As so much is currently unknown, we cannot confirm anything at this time. We will update you when we have more information.