In what the Chancellor of the Exchequer has described as the most fundamental reform to the way people access their pensions in almost a century, the Government is to “abolish the effective requirement to buy an annuity”. For the pensions industry, this dramatic change to the defined contribution landscape is the centrepiece of Budget 2014.

Accessing DC savings

From April 2015, individuals will be able to access DC pension savings “as they wish from the point of retirement”, with drawdown of pension taxed at marginal income tax rates rather than the current rate of 55% for full withdrawals.

The Government will introduce a new duty on both trust-based pension schemes and pension providers to offer a “guidance guarantee”: members who retire with a DC pension will have to be offered free and impartial face-to-face guidance on their choices at the point of retirement. The devil is likely to be in the detail, which we await with interest!

Other changes

To pave the way for these wider reforms, from 27 March 2014 the government is to introduce a number of further changes to the tax regime relating to DC benefits, to:

  • reduce from £20,000 to £12,000 the amount of guaranteed pension income that individuals need in retirement in order to access their savings under flexible drawdown arrangements;
  • increase the capped drawdown limit from 120% to 150%, to add flexibility for those who would otherwise buy an annuity;
  • increase the size of a single pension pot that can be taken as a lump sum, from £2,000 to £10,000;
  • increase from two to three the number of pension pots of below £10,000 that can be taken as a lump sum; and
  • increase the trivial commutation maximum (measured across all of a member’s registered pension schemes) from £18,000 to £30,000.

The Budget Statement says that the Government will also consult on options to simplify the tax rules on dependants’ pensions, and explore whether there should be any changes to the current tax rules which prevent individuals aged 75 and over from claiming tax relief on pension contributions.

Those who have been following developments in relation to pension liberation will be interested to note the promise of immediate legislation to give HMRC wider powers to prevent liberation, through greater control over the registration and de-registration of pension schemes.

What about DB schemes?

There may be implications for defined benefit schemes, too. The Government is to remove the option for public sector DB scheme members to transfer to DC arrangements, and is consulting on whether similar changes are required in relation to private sector pensions. The Government says that it is concerned that a large scale transfer of DB members to DC arrangements, to take advantage of the new DC flexibilities, could be detrimental to the wider economy.

The Government confirms that members of DB schemes will be able to benefit from the higher £30,000 trivial commutation limit.


Budget 2014 opens up new possibilities for many pension scheme members (and a number of potential considerations for trustees and providers). The long term impact on the pensions world remains to be seen, but there seems no doubt that it will be significant.