The Chancellor in his 2014 Budget announced far reaching changes that apply to anyone taking benefits after April 2015.
Anyone over 55 can take their entire pension fund as a lump sum
- You can take your pension fund savings in defined contribution schemes as a lump sum, or series of lump sums. 25% of any withdrawal will be tax free. The remaining amount will be liable to income tax.
- The minimum pension age will increase from 55 to 57 by 2028 and then increase in line with the State Pension Age from 2028.
- You need to check with your scheme provider or insurance company to make sure the scheme will allow you to take your benefits as a lump sum, or if there are any conditions surrounding when or how you can do this.
Restrictions on drawdown will be removed
- There were limits on how much income you could take from drawdown unless you met certain criteria. Since April 2015, you can withdraw as much as you like.
- You should check with your scheme provider or insurance company to make sure the scheme will allow this.
Pension Wise. A free government service
- The government has introduced a free service that guarantees that everyone is offered free and impartial guidance at the point of retirement.
- The government’s initiative will help you understand the choices and decisions you have to make.
- The free support you receive will not result in a personal recommendation. It will be a general explanation of the choices and options available to you.
Lump sums payable on death
- The Chancellor announced in the budget that the 55% tax charge on lump sums payable on death will be reviewed.
- He has since abolished this charge from April 2015.
- On death before age 75 no tax will be payable up to the Lifetime Allowance. This is currently £1.25m, but may be more in certain circumstances.
- On death after age 75, tax will be payable at 45% if the fund is payable as a lump sum (though it is proposed to change this to be taxed at the marginal rate of tax paid by the person receiving the lump sum from 2016/2017 tax year. If the money is kept in the fund and withdrawn gradually it will only be taxed at the marginal rate of the person receiving it.