Over the next week or so, we will detail the pension changes due to come in from April 2015.
Change 2 – Flexible access to pensions from age 55
What is changing:
From April 2015 pension investors aged at least 55 will have total freedom over how they can take an income from their pension, over and above any tax free cash. They can choose to:
a. Take the whole fund as cash in one go;
b. Take smaller lumps, as and when they like;
c. Take a regular income (via income drawdown – where they draw directly from the pension fund, which remains invested – or via an annuity – where they receive a secure income for life)
Any withdrawals in excess of the tax free amount will be taxed as income at your marginal rate. So, if you are a basic rate (20%) tax payer, any income you draw from your pension will be added to any other income you receive (e.g. your salary) and this could push you into the higher (40%) or even top rate (45%) income tax bracket.
It should also be possible to take the tax free cash straightaway and the taxable income via income drawdown at a later date.
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. Investors aged 55 or over in April 2015 should be able to take advantage of the increased flexibility straightaway.