"The most radical changes to pensions in almost a century"

The Government is introducing “the most radical changes to pensions in almost a century” from April 2015.

They were initially proposed by the Chancellor in his March Budget and confirmed in the Taxation of Pensions Bill published on 14th October 2014. Further changes were also announced in the Autumn statement on 3rd December 2014.

Here we give the basic facts and explain how they might affect you.

Over the next week or so, we will detail the changes due to come in from April 2015.

Change 1 – Freedom over how investors take tax-free cash

What is changing:

Most people can take up to 25% tax-free cash from their pension. From April 2015 you can either take the tax-free cash all in one go or have a portion of any withdrawals you make paid tax free.

So, someone with a pension worth £100,000 will have the choice of:

a. Taking the £25,000 tax-free cash all at once, with any subsequent withdrawals taxed as income;

b. Making a series of withdrawals over time and receive 25% of each withdrawal tax free. For instance, someone making lump-sum withdrawals of £20,000 would receive £5,000 tax free each withdrawal. Equally, someone taking lump sum withdrawals of £1,000 a month would receive £250 of each payment tax free with the rest subject to income tax.

Whilst your money is in the pension, it can remain invested. So, if your investments perform well you could end up with more money available to withdraw over time. Conversely, if your investments perform badly you could end up with less money available to withdraw.

Who will be affected:

Anybody with a defined contribution pension e.g. individual or group personal or stakeholder pensions, Self Invested Personal Pensions (SIPPs), some Additional Voluntary Contribution (AVC) schemes, etc – could benefit. However option b (above) will not be available when using the pension fund to buy an annuity. Investors aged 55 or over in April 2015 should be able to take advantage of the increased flexibility straightaway.

We will detail another change on Monday!
If you have any queries in relation to these changes or need any further guidance, please do not hesitate to contact us on 01772 825755.


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