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2015 Pension Changes - The most radical pension changes for almost a century

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The most radical pension changes in almost a century were introduced on 6th April 2015.

Pension Freedom

Most pension investors aged at least 55 now have total freedom over how they take an income or lump sum from their pension. They can choose to:

a) Take the whole fund as a cash lump sum – 25% tax free and the rest taxed as income

b) Take smaller lump sums as and when they like with 25% of each withdrawal tax free and the rest taxed as income

c) Take up to 25% tax free and a regular taxable income from the rest via drawdown or an annuity

Any withdrawals in excess of the tax free amount will be taxed as income at your marginal rate.

The rules apply to anybody with a defined contribution pension including a personal pension, group personal pension, stakeholder pension, SIPP and some AVC schemes.

Death Tax Benefits Abolished

The other major change is that it was normally only possible to pass a pension on as tax free lump sum if you died before age 75 and you had not taken any tax free cash or income. Otherwise, any lump sum paid from the fund was subject to a 55% tax charge.

This tax charge was abolished on 6th April 2015. The tax treatment of any defined contribution pension you pass on which you do not use to purchase a lifetime annuity or scheme pension will depend upon the age when you die.

If you die before age 75, your beneficiaries can usually take the whole pension fund as a tax free lump sum or draw an income from it also free of UK income tax either by choosing to buy an annuity or using drawdown. If you die after age 75 your beneficiaries have three options:

a) Take the whole fund as a lump sum. The pension fund will be subject to 45% tax. However, it is proposed that this should be taxed as your beneficiaries income for payments made after 5th April 2016

b) Take a regular income through an annuity or drawdown. The payments will be taxed as your beneficiaries income

c) Take periodical lump sums through drawdown. The lump sum payments will be taxed as your beneficiaries income

Pensions can therefore now be a very tax efficient way of passing money to your beneficiaries.

Take Advice

These are just some of the changes.  The best advice is probably to take advice!

Call Hannah Rogers on (01780) 764145 to arrange a free initial consultation to see one of our Independent Financial Advisers.