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Pension Legislation Changes

In the 2014 Budget, the Chancellor of the Exchequer announced radical changes to pension options at retirement giving individuals greater control over how they access their pension pots. After April 2015 if you have reached the age of 55 and regardless of the size of your money purchase pension pot it is proposed that you will be able to take income any way you choose; subject to paying income tax at that year's marginal rate.

Flexi Access Drawdown

This means that after taking a tax-free lump sum payment of 25% you will have the choice of taking further income in a number of different ways including:

  • As a single lump sum income payment - but the entire amount will be subject to income tax
  • By purchasing an annuity
  • By using an income drawdown contract
  • A combination of some or all of the above.

Flexi-access drawdown is the only drawdown option available for new arrangements set up from 6 April 2015. The flexibility of being able to take unlimited but taxable withdrawals combined with the options available to pass funds on after death means that Flexi-access drawdown is an attractive option when taking pension benefits from a money purchase arrangement.

This new flexibility will enable you to consider more sophisticated retirement strategies such as arranging to take lump sums over a number of years to avoid paying higher rate tax or setting up a phased retirement plan where tax-free cash is used to provide an income each year.
Deciding which option is best for your circumstances is one of the most important financial decisions you will ever make.

Speak to a Retirement Specialist

Taking professional advice before making decisions regarding your pension has never been more important due to the fact that:

  • There are more retirement options to choose from thereby making the right decision more complex
  • There may be serious tax consequences if large income payments are taken in a single tax year
  • A mistake may result in a lower standard of living in retirement

The advantages of taking advice are that advisers can help you:

  • Take a longer term view of your retirement objectives - most people underestimate their life expectancy
  • Ensure you consider all the key issues - tax efficiency and sustainability are just two examples
  • Place your money in the best product, or combination of products based on your personal circumstances

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