Budget 2014 Summary

Sandy King
  • The personal allowance will be raised from £10,000 to £10,500. This is the amount you can take as an annual income before you get taxed.
  • The 40% income tax threshold will rise from £41,450 to £41,865 on April 6th 2014 and jump another 1% to £42,285 in 2015.
  • 25% lump sum remains in tact, but any lump sums above this amount now face just the marginal rate of income tax (20% – 45%) rather than the 55% charge that was imposed previously.
  • The income requirement for flexible drawdown has been reduced from £20,000 to £12,000
  • The capped drawdown limit has been raised from 120% GAD rates to 150% GAD rates. This means a 25% increase in pension income
  • The commutation limit has increased from 18,000 GBP to 30,000 GBP. This means if you have a small pension pot, you can now cash in your pension at retirement rather than having to take an annual income from it.
  • The tax-free limit for ISAs has been increased to £15,000, with stocks and shares allowances merged
  • No forced purchase of annuity
  • The age you can take your pension will likely increase from 55 to 57 in 2028
  • From 2015, pensioners will have complete freedom to withdraw as much of their pension as they like and will not be forced to buy an annuity.

Osborne said 13 million “defined contribution” (i.e.” money purchase” or private personal pension) savers were currently forced to purchase an annuity at retirement, but this will now come to an end with “free impartial advice” being given to pensioners at retirement, so pensioners know their options.

This means they can still purchase an annuity if they like, but would be given advice on shopping around for the best deal and they can elect to take a much more flexible income drawdown rather than an annuity.

Osborne said limits on income drawdown and flexible drawdown would be first reduced, then scrapped and “trust” would be handed back to savers.

From 27th March, the amount of guaranteed income people need in retirement to access their savings will fall from £20,000 to £12,000 per year. This means that they can start drawing extra income with a pension pot of around £240k rather than £400k. This means pensioners can get access to higher amounts of their lifetime savings earlier.

The capped drawdown withdrawal limit will rise from 120% to 150% of an equivalent annuity. This means that someone who previously had a pension income of 12,000 GBP per year can now receive a pension income of 15,000 GBP per year, so a pensioner’s income has increased by 25%!