Pension Annuity - The new rules from April 2015
If your pension pot is available to access from April 2015, the good news is that you will have greater freedom to choose what you do with your money.
Previously, up to when the proposals were announced, you were only able to withdraw a maximum of 25% of your pension pot as a cash free lump sum. The remaining amount had to be used to purchase an annuity however all this is about to change.
To summarise, from April 2015, you will be able to:
- Take up to 25% of your pension pot as a tax free cash sum (this is already in place)
- Withdraw the remaining 75% in one lump sum or in stages however this may be subject to income tax
- Purchase an annuity to provide an income
- Choose a combination of the above
These changes will affect all pension schemes however if you are in a ‘final salary’ scheme, you should seek independent financial advice before withdrawing more than 25%, as you could be giving up significant benefits.
In addition, there are certain interim rules that have been implemented in preparation for these changes in April 2015:
- If you are 60 years of age or older and your total pension pot is £30,000 or less, you can now withdraw 100% as a lump sum, taking the first 25% as a tax free cash sum
- The rules and limits have been relaxed on “income drawdown”: this type of pension lets you take an income from your pension pot whilst leaving the balance invested and is normally associated with larger pots, as it is more complex and usually requires advice.
Keep in mind that depending on your circumstances and financial position, withdrawing cash sums could affect your state benefits.
When the changes come into effect, help and guidance will be available from the Pensions Advisory Board, or you could seek advice from an Independent Financial Advisor, some of whom may charge for their services: the Money Advice Service can guide you on this.
Also visit our recent pension articles with all the latest updates here