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The New Pension Reforms – what you need to know

The New Pension Reforms

The New Pension Reforms

1 You can now take your defined contribution pension how you like

From April 2015, withdrawals from your pension will be treated as income and you can withdraw what you like; the amount of tax you will pay on what you withdraw will depend on the amount of other income you have in that year, as long as you are 55 or over. Previously, full withdrawals were taxed at 55%.

2 Subject to your pension scheme rules, up to 25% of your pension pot will remain completely tax-free, as it was before

Most people will still be able to access 25% of their pot in one go without paying any tax.

3 This now applies to both ‘defined contribution’ and ‘defined benefits’ schemes

‘Defined contribution’ is a type of pension also known as a ‘money purchase’ scheme. The amount you get when you retire usually depends on how much has been paid in and how well the investment has done.

A ‘defined benefit’ pension is typically a promise of a certain level of pension linked to your salary. People in the private sector or in a funded public sector scheme can transfer from a defined benefit pension scheme to a defined contribution one meaning they can benefit from the changes. Those in unfunded public sector schemes cannot transfer.

4 People can also pass on their pension to others without paying any tax

Instead of the 55% rate of tax when passing on their pension, people who die under 75 with defined contribution pensions can pass on their unused pension as a lump sum to a person of their choice tax free. Also, certain kinds of annuities that pay out income after you die (joint life and guaranteed annuities) will be tax-free when paid to a beneficiary, if the original policyholder dies below age 75. For people who die over the age of 75 with unspent defined contribution pensions, they can pass this on to a person of their choice who will be able to take it as as a lump sum taxed at 45% or as income and pay their normal rate of income tax.

5 Everyone who will be able to take advantage of the new reforms will be able to access free and impartial guidance

This will help people make confident and informed choices on how they put their pension savings to best use. This guidance will be available through a number of different channels – via the internet, over the phone, or face to face at a Citizens Advice Bureau. Your pension provider or scheme are required to tell you about the guidance and how to access it

6 The changes came into effect from April 2015

If you are over the age of 55, you will be able to take advantage of the new system, subject to your pension scheme rules. If you’re younger than 55 then you will be able to take advantage of the new system when you reach normal minimum pension age under the tax rules (this is currently age 55).

Article taken from www.serenityfp.com


Tina Weeks is the founder of Serenity Financial Planning Ltd which is based in Barnet. She has over 19 years experience as an adviser and works predominantly with families that need investment, pension and estate planning advice. She also works with business owners and those who are going through divorce or other life transitions. All suitable new clients receive a free initial consultation.


Contact details:

Serenity Financial Planning Ltd


0208 440 4788

Twitter: @TheFinanceCoach