Pension Freedom - Understanding the landscape

On the 6th April 2015 changes were made to the way you can use your pension savings.

This is a summary of what the changes may mean to you. To help you more, we’ve provided a Jargon Buster at the end of this document.

The main changes are:

Minimum pension age

This will increase from age 55 to age 57 in 2028.

Taking cash

You can now take ALL or PART of your pension fund as cash on or after your 55th birthday. You can still take 25% of your pension pot tax free.

Income drawdown

With Flexi-access drawdown you can now TAKE as much money as you like, when you like. This replaces existing Capped Drawdown and Flexible Drawdown.

Tax on Income Drawdown when you die

The 55% tax on death benefits for people aged 75 and under WILL BE COMPLETELY REMOVED, and reduced for those aged 75 and over at time of death.

Lump sum withdrawals. Uncrystalised Funds

This new option on some products means you won’t pay income tax on 25% of each withdrawal you make, paying tax on remainder at your marginal rate of tax.

The Guidance Guarantee

Anyone in a defined contribution scheme nearing retirement will be able to access free and impartial guidance from the Pensions Advisory Service. You might like to visit their website.

Changes as of 27th March 2014

Maximum lump sum withdrawal

You can now take a maximum of £10,000 (up from £2,000) from three (up from 2) smaller pension pots - a potential £30,000 lump sum.

Pension pot of £30,000 or less. Trivial commutation

If you’re aged 60 and over, you can take one lump sum. The first 25% is tax free and you only pay tax on remainder at your marginal rate of tax.

Flexible drawdown. Minimum income requirement

This has dropped to £12,000 from £20,000.

Maximum drawdown limit

This has increased from 120% to 150% of the Government Actuary Department limit (GAD).

Jargon Buster

Capped drawdown - The Government sets a limit on the amount of income you can take (draw down) from your pension fund.
Flexible drawdown - You can take as much income as you wish each year, but you must be able to show you have at least £12,000 income a year from other guaranteed sources.
Income drawdown - When you keep your pension fund invested and draw down an income.
Uncrystalised funds - Only available on some products. For each income payment you receive 25% will be free of income tax. The remainder will be taxed at your marginal rate.
Trivial commutation - If you’re aged 60 and over, you can take one lump sum if your pension fund(s) are £30,000 or less. The first 25% is tax free and you only pay tax on remainder at your marginal rate of tax.
Flexible drawdown - You can take as much income as you wish each year, but you must be able to show you have at least £12,000 income a year from other guaranteed sources.