Pension Freedom

July 9, 2015 by Alan Leslie

The recent changes in pension legislation are arguably the most radical in many years.

As it used to be… before 6th April 2015

You could only access a proportion of your accumulated pension fund as a lump sum and the balance had to provide you with regular income. For many people, this is still ideal.

For personal pension plans and other such pension schemes (known as Money Purchase/Defined Contribution arrangements), you could either use your accumulated pension fund to purchase an annuity (an income for life) or draw directly from the pension fund in an HMRC-prescribed fashion.

If you had drawn some of your benefits, the balance of the pension fund would face a large tax liability on subsequent death.

How it is now…

You can now draw your entire pension fund when you wish and as much as you want – a proportion of this will still (currently) be free of income tax.

For some people, this new flexibility will be a very valuable option.

The rules are quite complicated and especially if one has benefits in a Final Salary (Defined Benefits) Scheme, this decision must be considered very carefully.

From 6th April 2015, pension funds are now free of Inheritance Tax on death, if you die before age 75.

In the future…

To add to this new pension freedom, it is expected that those people who bought annuities previously, will be able to sell these in a “traded annuity market” from 6th April 2016.

Please Note

This is a simplified overview of the pension landscape – it should not be seen or taken as advice, as advice can only be given on an individual basis.

Please do remember that your circumstances are individual and you should always take qualified financial advice before making any such decision, as generally, these decisions are irreversible and will always have some potential disadvantages as well as the advantages that are sometimes more obvious.