Managing the New Pension Flexibility

Changes introduced from 6 April 2015 allow people the flexibility to access their pension savings more freely and easily than before. In fact, you can use them rather like a bank account. If you would like more information on the main changes, ask Tax Help for Older People for their guide which aims to help you understand the tax treatment of the options available within the new, more flexible, regime.

The rules are complex, but we thought you might find it useful to understand these key points:

Pension flexibility came in from 6 April 2015

If you are over 55 and have a ‘defined contribution’ or ‘money purchase’ pension, your pension provider might allow you to take what you like, when you like, from your pension

The three main choices available will be:

  1. i.   To withdraw all of the money in one go
  2. ii.  Leave it in the scheme and take a regular or occasional income
  3. iii. Buy an annuity or enter into a ‘drawdown’ arrangement
  4.  A combination of all three

Rules about selling existing annuities do not come in until 6 April 2016

Defined benefit’ or ‘final salary’ pensions will still have stricter rules

It is still possible to take money out of defined benefit schemes under the existing trivial commutation rules. The taxation of these payments differs from the new flexible rules

There is no rush!

Just because the new rules start in April 2015, you do not have to decide now. Consider everything – your circumstances (personal and financial), investment choices, future plans and, importantly, tax consequences

Know the tax consequences of your decision

You are allowed to take some money out of your pension tax free. But plan ahead. Three-quarters (75%) of your pension savings will count as taxable income and  will be added to your other income,  which may give you an extra tax bill

Understand the tax ‘paper trail’

Money from pensions will be taxed under the Pay As You Earn (PAYE) system. You might not pay the right tax at the right time and may need to claim a tax refund or pay some more tax later on. If you take all of your money out,  you can usually claim back overpaid tax immediately. If you leave some money in your pension you might have to wait until the end of the tax year to get your refund or be told you owe tax

Take further advice

Use the Government’s guaranteed ‘Pension Wise’ guidance. Get specialist advice on your tax position and watch out if you claim tax credits or state benefits – check the effect of your decision on your entitlement. Beware, DWP may ask questions if they believe you have impoverished yourself by using or giving away your pension and then later apply for benefits

Pension Wise

The Pension Advisory Service               

Money Advice Service                        

Tax Help for Older People                       

This article is by Tax Help for Older People registered charity no 1102276, offering free tax advice to older people on incomes below £20,000 a year. The Helpline number is 0845 601 3321 or geographical 01308 488066.

Tax Help fop logo small

Leave a Response

You must be logged in to post a comment.

Other Legal & Finance - Finance - Pensions Articles

How to manage money of an older person you care for

23 Jul 18

Depending on the kinds of difficulties someone’s having with their finances, the help you could provide might involve anything from helping them with bills and paperwork and assisting with their day-to-day money, through to taking on a lasting power of attorney.

Personal Allowance – Is It A Giveaway?

07 Apr 15

New legislation on personal allowances From the 6th of April 2015  married couples and civil partners can…

Key Facts about the New State Pension

08 Jan 15

The new state pension is changing on 6 April 2016. How will state pension affect older people? They’ll remain…

Budgeting for bereaved parent

29 Nov 14

If your partner used to manage the budget for some or all of the household finances, taking these on after they die can feel overwhelming. Follow these steps to find out how to take control of your money.

Beware Pension Scams

16 Sep 14

Pension scams are on the increase in the UK. ‘One-off pension investments’, ‘pension loans’ or upfront…

Shop Online - view all

Goodtogoinsurance.com

Travel insurance tailored for those with & without medical conditions -no age limits. Call 0844 334…

Find out more

Get Going Travel Insurance

Get Going Travel Insurance offer medical travel insurance at the right price.

Find out more

Endsleigh Insurance

Endsleigh offers home, contents and car insurance. Get a quote now.

Find out more