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| What the changes to pension rules mean for you | |
| (34 minutes later) | |
| Retirees will gain greater access to their pension pots from 27 March as the first in a series of radical reforms announced in the chancellor's budget. | Retirees will gain greater access to their pension pots from 27 March as the first in a series of radical reforms announced in the chancellor's budget. |
| From April 2015, all restrictions on access to your pension pot will be removed, with the tax on withdrawing a pension fund cut to your personal rate. This will make it easier to use your entire fund as you wish. | From April 2015, all restrictions on access to your pension pot will be removed, with the tax on withdrawing a pension fund cut to your personal rate. This will make it easier to use your entire fund as you wish. |
| In the meantime a number of measures are being put in place to increase the amount of savings that can be freely accessed on retirement. | In the meantime a number of measures are being put in place to increase the amount of savings that can be freely accessed on retirement. |
| These changes affect anyone saving into a personal or workplace pension scheme, where payouts are based on the performance of the fund rather than final salary. | These changes affect anyone saving into a personal or workplace pension scheme, where payouts are based on the performance of the fund rather than final salary. |
| The first set of changes will make an immediate difference if you are about to reach pension age (55 for tax purposes but your scheme may have different rules) and: | The first set of changes will make an immediate difference if you are about to reach pension age (55 for tax purposes but your scheme may have different rules) and: |
| • You have up to £30,000 in your pension | • You have up to £30,000 in your pension |
| You will be able to withdraw the full amount from your pension, as the total amount that can be taken as a lump sum has increased from £18,000 to £30,000. | You will be able to withdraw the full amount from your pension, as the total amount that can be taken as a lump sum has increased from £18,000 to £30,000. |
| Of this, 25% will be tax-free, while the remainder attracts income tax at your rate – down from a 55% tax charge. This is one of the biggest changes as the average pension pot amounts to around £30,000, and many people are expected to take advantage of this new flexibility. | Of this, 25% will be tax-free, while the remainder attracts income tax at your rate – down from a 55% tax charge. This is one of the biggest changes as the average pension pot amounts to around £30,000, and many people are expected to take advantage of this new flexibility. |
| Typically, these savers would have felt compelled to buy an annuity, the financial products bought at retirement to provide an income for life. | Typically, these savers would have felt compelled to buy an annuity, the financial products bought at retirement to provide an income for life. |
| • You have several small pension pots | • You have several small pension pots |
| You will be able to take up to three personal pensions worth £10,000 each as cash, tax-free, rather than two worth £2,000. You can also cash in one workplace pension scheme worth £10,000 or less. | You will be able to take up to three personal pensions worth £10,000 each as cash, tax-free, rather than two worth £2,000. You can also cash in one workplace pension scheme worth £10,000 or less. |
| For example, if you had three personal pension pots of £7,000, £8,000 and £9,000 you will now be able to take these as a tax-free lump sum of £24,000. | For example, if you had three personal pension pots of £7,000, £8,000 and £9,000 you will now be able to take these as a tax-free lump sum of £24,000. |
| • You are keeping your pension money invested | • You are keeping your pension money invested |
| One of the changes relates to retirees choosing to go into "income drawdown", leaving their pension fund invested and withdrawing an income from this. You will be allowed to take larger sums as income, subject to your personal tax rate. The capped drawdown limit will be raised from 120% to 150% of the annual income you would have got had you bought an annuity instead. | One of the changes relates to retirees choosing to go into "income drawdown", leaving their pension fund invested and withdrawing an income from this. You will be allowed to take larger sums as income, subject to your personal tax rate. The capped drawdown limit will be raised from 120% to 150% of the annual income you would have got had you bought an annuity instead. |
| This means a 65-year-old retiree with a pot of £100,000 will be able to take an additional £1,830 from their pot, before tax, according to the Treasury. From April 2015, you can withdraw the whole amount, subject to your personal tax rate. | This means a 65-year-old retiree with a pot of £100,000 will be able to take an additional £1,830 from their pot, before tax, according to the Treasury. From April 2015, you can withdraw the whole amount, subject to your personal tax rate. |
| The rules around "flexible drawdown" have also changed. Previously pensioners could only use this way of drawing on their pension if they had £20,000 of secured income from other sources but they can now opt for it if they have just £12,000 coming in from elsewhere. | The rules around "flexible drawdown" have also changed. Previously pensioners could only use this way of drawing on their pension if they had £20,000 of secured income from other sources but they can now opt for it if they have just £12,000 coming in from elsewhere. |
| • You are planning to take a 25% tax-free lump sum this year | • You are planning to take a 25% tax-free lump sum this year |
| Anyone taking advantage of the rules allowing them to take a quarter of their fund as a tax-free lump sum previously had six months to arrange what to do with the rest of their pension, whether they wanted to buy an annuity or go into drawdown. That rule would have meant that anyone retiring now would not have been able to take advantage of the new rules coming into force in 2015, so it has been scrapped. If you take a lump sum now you can leave the rest of your fund where it is for as long as you want. | Anyone taking advantage of the rules allowing them to take a quarter of their fund as a tax-free lump sum previously had six months to arrange what to do with the rest of their pension, whether they wanted to buy an annuity or go into drawdown. That rule would have meant that anyone retiring now would not have been able to take advantage of the new rules coming into force in 2015, so it has been scrapped. If you take a lump sum now you can leave the rest of your fund where it is for as long as you want. |