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What are the new pension rules?

The tax rules are to be changed to allow individuals aged 55 and above to access their defined contribution pension as they wish from April 2015.

As part of the Taxation of Pensions Bill 2014, which was published in mid-October, the government is proposing to change the rules on taking pensions as a lump sum with the effect that people will be able to take a series of lump sums instead of only one. Under the current rules, people who want to take their pension as a lump sum would take 25{677d09a4efbb15fa2071f70b399e2da7420a8ab894c50422b3cd4dbcb24abd32} of their pension pot free of tax and then place the other 75{677d09a4efbb15fa2071f70b399e2da7420a8ab894c50422b3cd4dbcb24abd32} in a drawdown account. Any money they take out of their drawdown account will then be taxed at their marginal rate.

Under the new tax rules, individuals will have the ability to take a series of lump sums from their pension fund, with 25{677d09a4efbb15fa2071f70b399e2da7420a8ab894c50422b3cd4dbcb24abd32} of each payment then free of tax and 75{677d09a4efbb15fa2071f70b399e2da7420a8ab894c50422b3cd4dbcb24abd32} taxed at their marginal rate, without actually having to enter into a drawdown policy.

“People who have worked hard and saved all their lives should be free to choose what they do with their money,” said Chancellor of the Exchequer George Osborne as these latest changes to the pensions saving landscape were announced. “For some people, an annuity will be the right choice whereas others might want to take their whole tax-free lump sum and convert the rest to drawdown.”

The March 2014 Budget included a fundamental change to how people can access their pension, introducing measures to allow retirees to spend their pension pot as they choose, rather than having to buy an annuity.

According to government figures, from April 2015, around 320,000 individuals retiring each year with defined contribution pension savings will be able to access them as they wish, subject to their marginal rate of tax.

Six months later, the Chancellor announced that, again from April 2015, people are to have the freedom to pass on their unused defined contribution pension to any nominated beneficiary when they die, rather than having to pay the onerous 55{677d09a4efbb15fa2071f70b399e2da7420a8ab894c50422b3cd4dbcb24abd32} tax charge that currently applies to pensions passed on at death. With pensions saving clearly now a major focus for politicians and thus in a state of some flux, it is well worth considering seeking expert advice on your individual circumstances.

For full details please refer to the Government website below: