From April 2015: more freedom and choice for pension savers
The government’s proposed changes to pensions, which we wrote about in Issue 5 of our newsletter, have now become law – giving more flexibility to pension savers.
From 6th April 2015 people age 55 or over will have greater control over how they use their pension savings; choices include taking all their pension savings as a lump sum when they retire, drawing them down over time, buying an annuity to give them a guaranteed regular income for the rest of their life, or even taking a series of lump sums whilst continuing to contribute to their fund.
For example, if you have £100,000 of pension savings you will still be able to take £25,000 (25%) as a tax-free lump sum but then will have the following options:
take out the remaining £75,000 in one go and pay tax on it at your marginal rate;
buy an annuity with all or some of your remaining £75,000 to give you a guaranteed income for the rest of your life;
leave the rest of your money invested and take it out in small or larger amounts to spend as and when you need it (this would also be taxed as income).
Alternatively you could take a series of lump sums of say £5,000 each, as and when you wish to, and still continue to contribute up to £10,000 per year into your pension pot. Each lump sum would be 25% tax free with the rest taxed as income.
Along with the new choices people will now have, comes greater responsibility to make sure their pension savings last for as long as they need them.
To guide pension savers in making the right choices for their circumstances, the government is offering free and impartial face-to-face guidance at retirement for everyone who has a DC pension.
This service will be known as Pension Wise and will be provided free to consumers by Citizens Advice and The Pensions Advisory Service. It will be available from April 2015 via the Pension Wise website, over the phone or in face-to-face sessions and will cover things like
what you can do with your pension pot
the different pension types and how they work
what’s tax-free and what’s not.