The New Pension Rules

We have been hearing for some time about the changes to the way pensions are handled in retirement. With the changes becoming available after 5 April 2015 we all now need to look at our own pension provisions.

HMRC has produced a website at www.pensionwise.gov.uk and a helpline on 03003301001, as well as trained  pensions guidance advisors via your local Citizens Advice Bureau. These services can offer you free “guidance” but not advice on the new pension rules and the option which you should consider.

You can also approach financial advisors and other financial institutions but should be aware that their advice may not be impartial and that fees and charges my be incurred.

The ability to draw down 25% tax free when you reach retirement age has not changed but with the remaining 75% you now have the choice to either:

  • buy an annuity
  • receive a flexible income by drawing down other sums subject to the tax implications (see below)
  • cash in your scheme completely.

The important tax consideration is that only 25% of the amount that you receive from your scheme is tax free. Any further income received will be tax as income under the normal rules of taxation. This will take into account all income received in any tax year and could lead to tax at 20%, 40% or even 45%. You should therefore ensure that you get proper advice before entering into any pension drawdown scheme.

In order to prepare yourself for obtaining this advice you should consider the 6 steps set out on the pensionwise website mentioned earlier.

If you need advice on the taxation implications of your pension advice please contact us to arrange an appointment.