New Pensions Flexibility

The tax rules are to be changed to allow individuals aged 55 and over to access their defined contribution pension as they wish from April 2015. As part of the Taxation of Pensions Bill 2014, which was published in mid-October, the government is proposing changes to the rules on taking pensions as a lump sum, so that people will be able to take a series of lump sums instead of only one.

Under the current tax rules, people who want to take their pension benefits would take 25% of their pension pot free of tax and then place the other 75% in a drawdown account or purchase an annuity. Any regular pension income they receive from an annuity or drawdown account will be taxed at their marginal rate.

Under the new rules, individuals will have the ability to take a series of lump sums from their pension fund, with 25% of each payment then free of tax and 75% taxed at their marginal rate, without having to enter into a drawdown policy. The March 2014 Budget introduced measures to allow retirees to spend their pension pot as they choose rather than having to buy an annuity while, six months later, it was announced people are to have the freedom to pass on their unused defined contribution pension to any nominated beneficiary when they die.

With pensions saving clearly now a major focus for politicians and therefore in a state of some flux, it is well worth considering seeking expert advice on your individual circumstances.

Contact us if you would like to speak to an adviser about your own pension planning.

AWP