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Reasons to be cheerful


After yesterday's expected tough Budget, only a resounding win in the football this afternoon can possibly cheer us all up (unless you are female or non-English in which case an early exit might be the good news you are looking for). It wasn't all doom and gloom in the Budget though; the news on pensions should cheer us all up regardless of what happens this afternoon.

The proposed reduced annual allowance on pension contributions of £30,000 - £45,000 is less than the figure of £50,000 the industry had been pushing for, but it brings much needed simplicity compared with the current ridiculously complex rules for those with high incomes. High earners will be able to understand pension contributions again, and that can only be good news. The threatened LibDem proposals to scrap higher rate tax relief have disappeared, for now at least.

The action now being taken to remove the age 75 rule is even better news. The changes will take effect in 2011-12 and in the meantime we have transitional rules. It's worth reading the actual Budget Note (from page 53 - not all of it!), rather than the press comments, and I've attached a link to it.  A few points stand out in this:

  • In the interim period before 2011-12, age 75 becomes age 77. This means that anyone reaching 75 over this period can continue with USP, rather than having to buy an annuity or convert to ASP. It looks, though, as if they will still need to crystallise all their lump sum before age 75.
  • In the interim period, tax charges on lump sum death benefits for those over 75 will be at the pre-75 rate of 35%, instead of the current rate of up to 82%. Let's hope that this continues after 2011-12 as well and the 82% rate has gone for good.
  • There are still some gaps to be filled in, e.g. what happens to those who are currently over 75 and on ASP - will they be able to convert back to USP? What will the new rules be after 2011-12?

Generally this looks very promising, with the many individuals who want control over their pensions being able to extend this beyond age 75.

PS I mentioned in my last blog that many members of basic "SIPPs" might prefer a few thousand less funds to choose from, in return for the choice of more than one bank account. It isn't just bank accounts where these SIPPs fall down, as an example last week confirmed. We've been contacted by someone who took out a SIPP with another provider, only to find that it couldn't invest in the middle of the road fund he had chosen, simply because it wasn't quoted. He's now seen the error of his ways and switched to us. At £245 p.a. our basic SIPP fee isn't the cheapest in the market, but it's for a full SIPP with all the options available, and in our view a small price to pay for all the flexibility.

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