WHAT IS CHANGING? 1 JULY MARCH 2014 APRIL 2015

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1 BUDGET 2014 PENSIONS AND SAVINGS RULES Our simple Q&A looks at the changes happening in the pensions and savings industry and how you may be affected.

2 THE 2014 BUDGET STATEMENT ANNOUNCED SOME SIGNIFICANT CHANGES TO THE OPTIONS AVAILABLE TO YOU WHEN YOU COME TO RETIRE. THE CHANGES AIM TO EMPOWER BRITISH SAVERS TO TAKE GREATER CONTROL OVER THEIR OWN PERSONAL FINANCES ON THEIR JOURNEY TOWARDS RETIREMENT. OUR Q&A TAKES A CLOSER LOOK AT WHAT IS CHANGING AND HOW YOUR PLANS MAY BE AFFECTED. WHAT IS CHANGING? 27 MARCH 2014 Increase to small pension pot limits Capped drawdown income limits increased 1 JULY 2014 New ISAs available with 15,000 limit APRIL 2015 Proposal to change the rules around using a pension fund to provide an income 1

3 PROPOSED CHANGES TO ANNUITY LEGISLATION UNDER CURRENT RULES WHEN YOU RETIRE IT S GENERALLY POSSIBLE TO TAKE 25% OF THE VALUE OF YOUR PENSION FUND AS A TAX-FREE LUMP SUM. THE REMAINDER OF YOUR FUND MUST THEN BE USED TO PROVIDE A TAXABLE INCOME FOR THE REST OF YOUR LIFE, BY BUYING AN ANNUITY FROM A PENSION PROVIDER OR BY DRAWING INCOME FROM YOUR FUND. The 2014 Budget introduced more flexibility around how savers access their own money. It is proposed that if you plan to retire after April 2015 you won t need to buy an annuity to access the remainder of your fund. Instead you can choose to take the whole fund as one or more lump sums. Generally only 25% is tax-free and the rest will be taxable. WHY HAVE THESE CHANGES BEEN PROPOSED? The changes aim to give you more flexibility over how you access your money. What s best for you will depend on your own circumstances and we recommend you get professional financial advice to help with your decision. The Government also plans to introduce free face-to-face guidance at the point when you retire from April Details of how that will work aren t available yet. CAN I STILL PURCHASE AN ANNUITY IF I WANT TO? Yes. You will be free to do whatever you want with your pension fund. That could still mean taking a tax free cash lump sum and buying an annuity if a regular guaranteed income is important to you. Or you can take the whole fund as one or more lump sums. Generally only 25% is tax-free and the rest will be taxable. I M DUE TO RETIRE BEFORE APRIL 2015 WHAT OPTIONS DO I HAVE? If you want to retire before April 2015 the current rules will continue to apply. If you don t immediately need the income from your pension, it s possible to delay retirement until after April 2015 so you can qualify for the new rules. Your pension doesn t necessarily have to be linked to when you stop working this means you can stop working and continue paying contributions until you choose. I VE ALREADY GOT AN ANNUITY BEING PAID TO ME. WHAT CAN I DO? Once an annuity is set up and income paid, legislation doesn t allow you to change your mind. If your annuity has only just recently been applied for and you are still within your cancellation period, you can cancel the annuity but you may only be able to return to your original pension arrangement if you can return any tax free cash lump sum. Scottish Widows, along with all other pension providers, are currently in discussions with HMRC about whether it will be possible to return the tax free cash lump sum without additional tax charges. When we have received guidance from HMRC we will be in contact with you to discuss what options are available. For any cases set up from 18th February 2014 we have extended the cancellation period by another 30 days, so you now have 60 days to change your mind. I M IN THE PROCESS OF BUYING AN ANNUITY FROM SCOTTISH WIDOWS CAN I CHANGE MY MIND? Yes, you can change your mind before the annuity is set up or immediately after if you are still within your cancellation period which has now been increased to 60 days. What s best will depend on your personal circumstances, and you should get professional financial advice if you are in any doubt. 2

4 INCREASE TO SMALL PENSION POT LIMITS FROM 27TH MARCH 2014 THE GOVERNMENT INCREASED THE SMALL PENSION FUND LIMIT WHERE YOU CAN TAKE IT ALL AS A CASH LUMP SUM SUBJECT TO TAX FROM THE AGE OF 60. IT IS ALSO KNOWN AS TRIVIAL COMMUTATION. SINGLE FUND LIMIT INCREASED TO 10,000 FROM 2,000 New legislation means that if you are aged 60 or over and have less than 10,000 in a single pension fund you can take it as a lump sum regardless of any other pension funds you may have. If you have personal pension funds you can now do this a maximum of three times on funds that may be held with the same or different providers. You could previously only do it two times. WHAT IF I HAVE MORE THAN 10,000 IN A SINGLE FUND? If you are aged 60 or over and the total of all the pension funds you hold is valued at less than 30,000 you can take them all as a lump sum. The previous limit was 18,000. You may be able to do both options depending on the total fund value you hold across your multiple pensions. Certain other conditions apply and we strongly recommend you get professional financial advice if you re in any doubt. If you take the lump sum option in either scenario, 25% will be tax-free and the rest will be taxable. WHAT IF I HAVE ALREADY TAKEN 2 SMALL POTS BEFORE 27 MARCH 2014? You will be able to take a further pot up to 10,000 as a lump sum on or after 27 March

5 CHANGES TO CAPPED DRAWDOWN LIMITS FROM 27TH MARCH 2014, THE MAXIMUM INCOME FROM CAPPED DRAWDOWN INCREASED FROM 120% TO 150% OF THE NOTIONAL ANNUITY LIMIT SET BY THE GOVERNMENT. FROM APRIL 2015, THE PROPOSAL IS THERE WILL BE NO LIMIT ON HOW MUCH INCOME YOU CAN TAKE. I AM AN EXISTING CUSTOMER WHAT DO THE CHANGES MEAN FOR ME? If you re an existing customer this increase is not available straight away, and if you have an existing drawdown plan with us already, the maximum income limit will increase to 150% with effect from the anniversary date of your last review. I AM A NEW CUSTOMER WHAT DO THE CHANGES MEAN FOR ME? If you are starting a new capped drawdown arrangement your maximum income will be 150% from the start. If you re an existing customer going through an Income Drawdown review, we will update our systems to reflect the new limits by 9th April. We will ensure that all cases affected are processed correctly once the system change is made and will issue the appropriate confirmation. 4

6 INDIVIDUAL SAVINGS ACCOUNT (ISA) CHANGES THE BUDGET ANNOUNCED A NEW ISA AND INCREASED THE LIMIT TO 15,000 GIVING YOU MORE FLEXIBILITY OVER HOW MUCH YOU SAVE. WHEN WILL THE NEW ISA AND THE 15,000 INVESTMENT LIMIT START? New ISAs will be available from 1 July But you can still open a stocks and shares ISA or a cash ISA for 2014/2015 from 6 April WHAT IF I WANT TO OPEN AN ISA IN THE 2014/2015 TAX YEAR, BUT BEFORE THE NEW ISA RULES START? You can open a stocks and shares ISA and/or a cash ISA for 2014/2015 from 6 April 2014 onwards. The overall limit is 11,880 and up to 5,940 can go into a cash ISA. Your ISAs will become New ISAs (NISAs) on 1 July You will then be able to top up your investment to the full 15,000 allowance for 2014/2015. There will be no restriction on how much of this total you can contribute to a Cash NISA. So if you ve contributed 5,940 to a Cash ISA and 5,940 to a Stocks and Shares ISA, you will be able to contribute a further 3,120 in total to your NISAs during 2014/2015 at any time starting from 1 July HOW CAN I MAKE USE OF THE NEW 15,000 LIMIT IF I VE ALREADY OPENED A CASH ISA IN 2014/2015 BUT BEFORE 1 JULY 2014? Your Cash ISA will become a Cash NISA on 1 July You will be able to contribute up to 15,000 during 2014/2015, including any amounts you ve already paid in. So if you ve contributed the maximum 5,940 allowed during the period 6 April 2014 to 30 June 2014, you will be able to contribute a further 9,060 to a Cash NISA during 2014/2015 at any time starting from 1 July HOW CAN I MAKE USE OF THE NEW 15,000 LIMIT IF I VE ALREADY OPENED A STOCKS AND SHARES ISA IN 2014/2015 BUT BEFORE 1 JULY 2014? Your Stocks and Shares ISA will become a NISA on 1 July You will be able to contribute up to 15,000 during 2014/2015, including any amounts you ve already paid in. So if you ve contributed the maximum 11,880 allowed during the period 6 April 2014 to 30 June 2014, you will be able to contribute a further 3,120 to the stocks and shares component of a NISA during 2014/2015 at any time starting from 1 July WHAT HAPPENS TO ANY ISAS I ALREADY HOLD WHEN THE CHANGES ARE INTRODUCED? From 1 July 2014, your existing ISA will automatically become a NISA, with a higher limit of 15,000 and the flexibility to spread your money between cash and stocks and shares in any proportion you choose. This means you will be able to add further money to your cash or stocks and shares NISA up to the 15,000 limit in 2014/2015. WILL I BE ABLE TO TRANSFER MY STOCKS AND SHARES ISA INTO A CASH ISA? Yes from 1 July 2014, any money you have in a stocks and shares NISA can be transferred into a cash NISA. If you wish to do this you will need to approach the provider of the cash NISA that you wish to transfer your funds to, who will then contact the provider of the existing stocks and shares NISA to arrange the transfer. You should not withdraw sums from your stocks and shares NISA in order to deposit it into a cash NISA yourself. If you do, any amount that you pay in will count towards a fresh investment against the overall NISA limit of 15,000. 5

7 FIND A FINANCIAL ADVISER For more information on your personal circumstances we recommend you get professional financial advice. Find an adviser in your area: Scottish Widows plc. Registered in Scotland No Registered Office in the United Kingdom at 69 Morrison Street, Edinburgh EH3 8YF. Telephone: Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number /14