A strange exercise in democracy

The Finance Bill received Royal Assent on 17 July and with it the first part of the pensions reform became law.

The passage of each year’s Finance Bill through parliament is normally a protracted process. This year’s Bill was introduced to the House of Commons on 27 March and became law a little over three and a half months later. However, the legislation for the 2014/15 changes to pensions were not added to the Bill until 26 June, leaving little time for the politicians to consider the thirteen pages of detailed amending clauses. In fact the rules turned out to be rather different from what the various Treasury and HM Revenue & Customs statements had suggested.

For example, what was originally said to be a maximum 18 month window between drawing cash from your pension plan and entitlement to the associated pension has now become a fixed end date. So, for example, if you drew your lump sum in February, just ahead of the Budget or plan to draw it in September, you will still have the same pension entitlement deadline of 5 October 2015. A day later and your lump sum becomes taxable as an unauthorised payment.

Unfortunately this concessionary window will only apply for lump sums drawn by 5 April 2015. Thereafter the law reverts to the previous version and the maximum gap between drawing a lump sum and then becoming entitled to a pension falls to six months.

The Finance Act 2014 also incorporated some other useful pension law changes, which could be relevant if you are intending to draw on your pension arrangements in the near future. However, these amendments will generally fall away from 2015/16 when the Budget reforms take full effect (see below).

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. The value of tax reliefs depends on your individual circumstances. Tax laws can change.

7th August 2014