In last week’s Budget statement, chancellor George Osborne announced a series of changes to the pension system. Although many of the changes won’t take effect until 2015, some of them will apply from today. Here’s our guide to the things you need to know now.
If you are in a defined contribution pension scheme, from next year you will no longer need to purchase an annuity, although annuities will still be available for those who want them. The key change to the system is that, from next year, you will have more choice over how to take your pension. You will have the option to:
- Take your pension savings as a lump sum
- Draw them down over time - meaning your pension fund remains invested in the pension as you choose, while you draw an income
- Purchase an annuity
A range of measures will take effect today which, depending on your circumstances, could make a difference to you.
Flexible drawdown threshold
Until today, in order to access flexible drawdown on your pension savings, you would have needed £20,000 of guaranteed income in retirement, outside of your pension pot. Today this limit is lowered to £12,000, meaning that more people will have the ability to take this option.
Taking small pension pots as a lump sum
Under the previous rules, if your total pension savings were less than £18,000, you could take this as a lump sum. For savers with pensions in excess of £18,000 they could take two smaller pots of up to £2,000 each as a lump sum. From today, if the total amount of pension savings you have is £30,000 or lower you can take this as a lump sum. Savers with more than £30,000 can take up to three smaller pots worth up to £10,000 each as a lump sum. You can still take out up to 25% of your pension pot tax-free, and the rest of the lump sum will be taxed at your usual income tax rate.
Capped drawdown withdrawal limit
From today, the capped drawdown withdrawal limit has been increased from 120% to 150% of an equivalent annuity. However, this will only be enactable on your next review anniversary. What are your thoughts on the changes? Get in touch on Twitter @YourWealthUK