The most radical changes to pensions for more than a century
George Osbourne was quoted as saying that:- "This Government believes in the principle of freedom. Individuals who have worked hard and saved responsibly throughout their adult life should be trusted to make their own decisions with their pension savings."
These changes were initially proposed by George Osbourne in his March Budget and confirmed in the Taxation of Pensions Act 2014. Further changes were also announced in the Chancellors Autumn Statement on 3 December.
Here we are going to inseminate the most critical information and give an insight into how you may be affected.
The first change is flexible Access to pensions from the age of 55
So what is actually changing?
From April 2015 most pension investors aged at least 55
will have total freedom over how they take an income or a lump sum from their
They can choose to either:
a. Take the whole fund as cash in one go – 25% tax free and the rest taxed as
b. Take smaller lump sums, as and when they like with 25% of each withdrawal
tax free and the rest taxed as income;
c. Take up to 25% tax free and a regular taxable income from the rest (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%) taxpayer, 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 immediately and the taxable
income via income draw down 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 immediately.