New pension rules
Radical changes to pensions from April 2015
In the Budget 2014 George Osborne announced a number of radical changes to the pension landscape. Under the new rules, you now have total freedom over how and when you access your pension – including taking your 25% tax-free cash. However, the new freedoms are not a legal requirement and not all providers are offering access to them. If yours doesn't, you could transfer to a pension like our award-winning Best SIPP to start taking advantage of the changes today*.
Freedom to access your pension
Anyone aged 55 or over now has complete control over how they access their pension. This means you can:
- Withdraw the whole amount in one go
- Make ad hoc lump sum withdrawals
- Take an income through drawdown or by buying an annuity
You are not limited to one choice, and depending on your retirement plans you could benefit from using several of these options. For example, you may want to take a tax-free lump sum for a holiday at the beginning of your retirement, followed by the purchase of an annuity to provide a guaranteed income for your living expenses. You could then take the rest of your money through income drawdown as and when you need to – as long as you have a pension like the Best SIPP that allows it.
Any income above your 25% tax-free amount will be taxed at your marginal rate. As part of the Tilney Bestinvest group of companies we have a nationwide team of financial planners who can help you to plan your retirement income and manage your tax liability. Get in touch on 020 7189 2400 for more information or book a free consultation today.
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Your 25% tax-free cash
You now have the option to take as many lump sum withdrawals as you like with anything in excess of your 25% amount taxed at your marginal rate. This means you can make a series of smaller tax-free withdrawals over several years, or even take your entire pension in a single tranche. You will not have access to this new flexibility if you opt for a guaranteed income by buying an annuity. Instead, you would need a pension like our Best SIPP that gives you total control over your pension savings.
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Passing on a pension after you die
One of the most popular pension changes was the abolition of the 55% ‘pension death tax’. The tax treatment of your pension now depends upon your age at death. Under the new rules, any pensioner dying before the age of 75 can pass their pension on to a nominated beneficiary, either as a tax-free lump sum or a tax-free income for life. If a pensioner dies after their 75th birthday, the money will be taxed at the beneficiary’s marginal rate.
The rules are different if you have an annuity. Normally, when you purchase an annuity you are guaranteed an income for the rest of your life with nothing passed on to the next generation. However, with a guaranteed term or joint-life annuity your beneficiaries could receive an income after you die. Under the new rules, this income can be paid to any named beneficiary.
Will you have access to the new pension changes?
There has been a lot of media attention over this year’s changes to pensions, but in spite of this pension providers have no legal requirement to actually offer you access to the new freedom and flexibility – even if they offer personal pensions like SIPPs. Our Best SIPP gives you more control over your pension, with the option to consolidate your existing pension investments in one place and total freedom over how you access your money – whether you plan to purchase an annuity, make lump sum withdrawals or apply for drawdown.
Open a SIPP today
What else has changed?
These are the changes most likely to affect your decision when it comes to drawing an income from your pension, but there are other new rules and this can be a particularly complex area. If you would like to know more before making a decision, please contact one of our financial planners on 020 7189 2400 or request a free telephone consultation today.
What if I have already retired?
Even if you have already drawn from your pension, you could still benefit from the new rules. Even if you were drawing an income through capped or flexible drawdown, you now have complete freedom to access your pension. However, if you have already purchased an annuity you will not be affected by the changes (although it is expected that this will change in April 2017).
Infographic – pension changes made simple
All of the new pension rules are complex, but our infographic gives you a clear and simple roundup of the changes that came into effect in April 2015. As well as the options for taking a flexible income through drawdown, it tells you more about the new freedom you have over your money and what happens to your pension when you die.
View pension changes infographic
The decision to access your pension is an important one and will affect your income and possibly your standard of living for years to come. Therefore we recommend that before any decision is made you receive regulated financial advice or get free guidance from Pension Wise. Find out more about Pension Wise.
*Before consolidating old pensions, you should ask yourself: Will I be charged or penalised by my existing provider for transferring? Will I lose any valuable features or benefits if I transfer? Have I considered my current pension charges, and could consolidating be more expensive? Am I part of an occupational final salary pension scheme? (In which case I would most likely be better off not switching).