Article on pension freedoms.

1. The New Pension Freedoms – what you need to know
You can now take your defined contribution pension how you like
Withdrawals from your pension will be treated as income and you can withdraw what you like; the
amount of tax you will pay on what you withdraw will depend on the amount of other income you
have in that year, as long as you are 55 or over. Previously, full withdrawals were taxed at 55%.
Subject to your pension scheme rules, up to 25% of your pension pot will remain
completely tax-free, as it was before
Most people will still be able to access 25% of their pot in one go without paying any tax.
This now applies to both ‘defined contribution’ and ‘defined benefits’ schemes
‘Defined contribution’ is a type of pension also known as a ‘money purchase’ scheme. The amount
you get when you retire usually depends on how much has been paid in and how well the investment
has done.
A ‘defined benefit’ pension is typically a promise of a certain level of pension linked to your salary.
People in the private sector or in a funded public sector scheme can transfer from a defined benefit
pension scheme to a defined contribution one meaning they can benefit from the changes. Those in
unfunded public sector schemes cannot transfer.
People can also pass on their pension to others without paying any tax
Instead of the 55% rate of tax when passing on their pension, people who die under 75 with defined
contribution pensions can pass on their unused pension as a lump sum to a person of their choice tax
free. Also, certain kinds of annuities that pay out income after you die (joint life and guaranteed
annuities) will be tax-free when paid to a beneficiary, if the original policyholder dies below age 75.
For people who die over the age of 75 with unspent defined contribution pensions, they can pass this
on to a person of their choice who will be able to take it as as a lump sum taxed at 45% or as income
and pay their normal rate of income tax.
Everyone who will be able to take advantage of the new reforms will be able to access
free and impartial guidance
This will help people make confident and informed choices on how they put their pension savings to
best use. This guidance will be available through a number of different channels - via the internet,
over the phone, or face to face at a Citizens Advice Bureau. Your pension provider or scheme are
required to tell you about the guidance and how to access it
The changes came into effect from April 2015
If you are over the age of 55, you will be able to take advantage of the new system, subject to your
pension scheme rules. If you’re younger than 55 then you will be able to take advantage of the new
system when you reach normal minimum pension age under the tax rules (this is currently age 55).
With so many options available, whatever your situation, you should not rush into making a decision
and should seek professional independent financial advice. Contact me on 07504 256418 for an initial
discussion.