LV= and Just Retirement have each launched one-year fixed-term annuities in response to the recent post-Budget shakeup to the pensions system. The reforms, which come into force in April 2015, will mean that anyone aged 55 or over will be able to take their entire pension pot as cash if they wish to do so, rather than having to buy an annuity.
Bridging the gap
The new products launched by LV= and Just Retirement consist of one-year fixed-term annuities, and are designed for people at the brink of retirement who want to defer making a long-lasting decision about how they will take their pension income in retirement until new rules come into effect next year.
Pensions are being radically transformed under plans announced in the 2014 Budget. From April 2015, retirees will be given far more freedom over how they use their pension fund. Here we explain how the forthcoming changes could affect you.
How are pensions changing?
The most radical changes will come into force in April 2015. Upon reaching retirement age, savers will have access to all the money in their pension pots and will, after tax, be able to do more or less what they want with it.
Under current rules, savers can take up to 25% of their pension pot as a tax free lump sum upon retirement. If you want to take a larger lump sum, you can, but if you go above certain limits you have to pay a 55% tax.
Under the new rules, this facility will remain but the tax on withdrawing the rest of the cash will also be cut to standard income tax rates, making it easier for people to use their entire fund as they wish.
With probably the most talked about Budget for many years and finally one that has gone the way of savers, we give you a 60 second guide to the changes around ISAs and what this will mean for both cash savers and investors.
New tax year, new limits
From 6th April 2014, the annual ISA investment limit for 2014/15 will initially rise by £360 to £11,880 (of which up to £5,940 may be in cash). The limit for the Junior ISA (JISA), which is beginning to attract more investors, will simultaneously rise to £3,840.
More radical reform
From 1st July 2014, more radical changes will occur:
- All existing ISAs will become new ISAs (NISAs), removing the distinction between Cash and Stocks & Shares ISAs
- The maximum you can save into a NISA will rise to £15,000 for the 2014/15 tax year, a further increase of £3,120
- The rule which prevents more than 50% of the total limit being placed in a Cash ISA will be scrapped and so the entire £15,000 NISA contribution limit can go into cash deposits.
- The ban on transfers from Stocks & Shares ISAs to Cash ISAs will be removed, thereby introducing full two-way transferability between deposits and investments and vice versa.
- Investment options will be widened to include, for example, peer-to-peer lending.
- The JISA limit will rise to £4,000 and this will also apply to Child Trust Funds (CTFs). The date from when CTFs can be transferred into JISAs was not brought forward and remains, provisionally, April 2015.