The rules concerning pensions have been revised to encourage people to save more and offer them complete choice and flexibility over what they wish to do with their pension savings. While this is good news for all those nearing retirement, it also means that they need to carefully plan their withdrawals in order to extract the most value from their pension fund.
New Rules on Pension Withdrawal
From 6th April 2015, it will be possible to take pension benefits from personal pensions without buying an annuity. This essentially means that you will be able to withdraw what you like, how you like, from your personal pension after the age of 55.
You can take out up to 25% of your pension pot tax free and have options of what to do with the remaining amount:
- You can either convert some or all of the remaining 75% into a taxable retirement income or
- You can take some or all of the remaining amount as a lump sum which will be liable for tax as normal ‘income’
Alternatively, you can withdraw your cash in stages with 25% of each withdrawal tax free and the remaining 75% liable for tax as normal ‘income’.
Moreover, you can continue making contributions to your pension fund and benefit from tax relief, even after you have started withdrawing from the fund.
Pension: Death Tax Abolished
The new rules have also done away with the 55% death tax on pension funds. So if you die before 75 with some or all of your money still in your pension fund, it will pass on to your beneficiaries tax free.
And if you die at or after 75, your beneficiaries can draw money from the fund themselves, which will be taxed at their marginal rate as ‘income’. They can also take the amount as a lump sum which will be taxed at 45% until April 2016.