UK: What The Budget 2014 Means For Pensions

Last Updated: 25 March 2014
Article by Mark Howard, Judith Donnelly and Paul Hodges

Trustees and employers will need to think carefully about how the far-reaching changes in yesterday's budget affect their pension scheme. Scheme rules may need amending and investment strategies may need to change – particularly lifestyle funds. Some changes come into effect next week, with the more radical changes being introduced with effect from April 2015.

Budget 2014

The Chancellor yesterday announced far-reaching changes to the pensions regime:

  • From April 2015 members of defined contribution schemes will no longer be required to purchase an annuity on retirement
  • From April 2015 members of defined contribution schemes will be entitled to free financial advice on retirement from April 2015
  • From 27 March 2014, the rules on trivial commutation and income drawdown are being relaxed

Other changes affecting pensions included:

  • The minimum retirement age will increase from 55 to 57 in 2028
  • The State pension will not be included in the new cap on welfare spending
  • Individual protection is to be introduced from 6 April 2014
  • HMRC will be given broader powers to prevent pensions liberation
  • The Government will consult on options to simplify dependants' pension scheme rules

Removal of requirement to purchase an annuity

The most radical of the Chancellor's reforms is without doubt the removal of the requirement to purchase an annuity. From April 2015, members of defined contribution schemes will be allowed to take their pension as cash with amounts over 25% of the total pension pot being taxed at the marginal rate. Currently, members are taxed at a punitive rate of 55% if they take more than 25% of their pension pot as cash.

The Chancellor pointed out that annuity rates have fallen by a half over the last fifteen years. He rejected the 'patronising' view that people were not able to decide for themselves how to spend their own money: 'People who have worked hard and saved hard all their lives, and done the right thing, should be trusted with their own finances.'

The detail is yet to be announced. Unless the Government introduces overriding legislation, most defined contribution schemes will need to amend their scheme rules in order to enable members to take advantage of the new flexibility. Employers and trustees will need to carefully consider their options before making a decision and communicating to members.

Some employers and trustees may wish to take a paternalistic approach and require some part of the pension to be used to purchase an annuity. On the other hand, purchasing an annuity may not be the right option for all members, especially those who have small pension pots or other sources of income in retirement. The implications for the administration of the scheme should also be considered.

Employers and trustees will need to review the investment options in their defined contribution schemes, in particular the default fund. Lifestyle funds and target date funds which assume that members will purchase an annuity on retirement may no longer be appropriate default funds.

The stock markets reacted quickly to the announcement, with evident panic selling of shares in annuity providers. Some share prices were down by over 50% within hours of the budget. In the long term, we expect that many people will still choose to purchase an annuity to provide long-term security in retirement. However, the annuity market may need to become more competitive to attract new business.

Changes effective next week

Of more immediate concern to trustees and employers will be the reforms which come into effect next week. The rules relating to trivial commutation and income drawdown are being relaxed:

  • The trivial commutation lump sum limit for an individual's total pension savings will be increased from GBP 18,000 to GBP 30,000
  • The maximum size of a small pension pot which can be commuted for a lump sum will be increased from GBP 2,000 to GBP 10,000 and the number of pots that can be taken will be increased from two to three
  • The minimum income threshold for flexible drawdown will reduce from GBP 20,000 to GBP 12,000
  • The maximum GAD limits for those in capped drawdown will increase from 120% to 150%

Again, many schemes will require rule amendments to be made in order for members to take advantage of this additional flexibility.

Additional changes

Minimum pension age

The minimum age at which a member can take their defined contribution pension will be increased from 55 to 57 from 2028. It is unclear whether any protection will be put in place for pension accrued to date, where the member has an absolute right under the scheme rules to take that pension at age 55 (or age 50, if the pension pre-dates the 2006 reforms).

Individual protection

From 6 April 2014, the lifetime allowance for tax relief will be reduced to GBP 1.25 million: if a member's pension pot is greater than this amount, tax penalties will apply.

A new form of protection called Individual Protection 2014 is being introduced to protect those who have already built up pension pots of between GBP 1.25 million and GBP 1.5 million in the expectation that they would benefit from tax relief on the full amount. Individual Protection will work in a similar way to the protections put in place when the lifetime allowance was introduced.

Pensions liberation

The Government will legislate to give HMRC greater powers to prevent pensions liberation, with greater control over the registration and de-registration of schemes.

Pensions liberation occurs where a member takes a cash transfer value of their pension, but the cash is transferred into a scheme which illegally then returns a proportion of that cash to the member. The amount of cash returned to the member is usually much less than the actual value of the member's pension, with the pensions liberator taking the rest. The member also becomes liable to a 55% tax charge, something that they may not have been aware of when they agreed to the transfer.

The Government has linked pensions liberation with other forms of serious fraud and organised crime and has stated that tackling this practice is a priority.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Mark Howard
Similar Articles
Relevancy Powered by MondaqAI
Travers Smith LLP
Travers Smith LLP
Gowling WLG
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Travers Smith LLP
Travers Smith LLP
Gowling WLG
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions