The chancellor’s surprise budget shake-up of pensions rules has been hailed as a “real benefit” to freelancers by an expert specialising in pensions for the UK’s professional contracting community.
Tony Harris, writing for Shout99, applauded the chancellor’s decision to introduce new options for people wishing to access funds under ‘defined contribution’ pension schemes. Experienced Umbrella Company Employees are likely to have such pensions from previous employers.
Existing rules require those wishing to draw money from these funds to transfer to a personal pension or risk being bounced into buying a rigid annuity-based income; however, contractors who have withdrawn up to 25% of these funds tax free will now have two additional choices: transferring to a personal pension ‘drawdown’ scheme or encashing the rest of the fund.
The latter avoids the stinging 55% tax levied on personal pension encashment under the old regime; instead, the funds will be treated as additional income and subject to income tax.
Contractors wishing to draw the rest of their fund under ‘flexible drawdown’ will no longer need a guaranteed annual income of £20,000 from final salary and state pensions; the minimum is now £12,000.
Mr Harris concludes: “Now contractors will be able to exploit the upfront tax benefits, grow a fund tax efficiently, but then have access to the bulk of the fund at or during retirement. Pension investment will also become a key plank of any estate planning work that clients undertake to gift pensions through the ages, and it is great to have some good news to report after several years of reduced allowances and income restrictions.”