Changes for pensions – questions and answers

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Moore Thompson 
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By Tim Martin and Trevor Wilshire

I keep hearing about big changes for pensions. What do they mean for me?

There will soon be some very significant changes to the way people can access certain pension funds.

Very simply, they mean that from April 2015 savers will be able to access defined contribution pension savings as they wish from the point of retirement, with no obligation to buy an annuity. Instead, you will have complete freedom to draw down as much or as little of your pension pot as they wish, anytime you wish.

What will my pension options be?

The new arrangements mean that from April 2015, anyone retiring will have the following options:

*buying an annuity

*taking out all their 
pension savings in a lump sum

*keeping their pension pot invested and accessing it over time.

Will I pay a lot of tax if I take money out of my pension?

Under the current tax system, you can take a quarter of your pension tax-free on retirement but you will pay 55 per cent if you choose to withdraw all your defined contribution pension savings at the point of retirement.

From April 2015, you’ll still be able to take a quarter of your pension pot tax-free on retirement, as at present.

But instead of paying 55 per cent tax on the rest, any other funds taken out will be taxed at normal marginal rates of income tax – 20 per cent for most pensioners.

What happens if I retire before April 2015?

New rules were introduced from March 27 this year to give people greater choice over how to access defined contribution pension now. The changes include:

*the amount someone can take out of their total pension savings as a lump sum has increased from £18,000 to £30,000

*the size of a small pension pot that can be taken as a lump sum, regardless of total pension wealth, has risen from £2,000 to £10,000

*the number of personal pension pots that can be taken as a lump sum under the 
small pot rules, rose two to three.

It all sounds very confusing...

It’s understandable that people are feeling confused about the changes, particularly when they also need to be thinking about ways to maximise the tax efficiency of their pension contributions, whether to a personal or company pension, and the lump sum.

We all want to achieve a retirement free of money worries, which is why it’s crucial to seek expert advice to help you make informed choices.