How Pension Rules May Affect You
As a direct result of last year’s Budget, changes were made to state pension rules on April 6th 2015. Many people are still unclear on what has changed and how it will affect them, so I’ve decided to write this article to help outline some of the main points.
Previously, you could take 25% of your fund as a tax-free lump sum. However, since the new changes came into practice, you can now choose whether you want to take all of your tax-free cash in one go, or just take a portion of it as and when you like. There is now greater flexibility.
There has also been changes to the contributions you can make to your pension fund. The annual amount you could contribute to your pension used to be £40,000. You now have flexibly accessed your pension benefits, you can only contribute up to £10,000 to all money purchase pensions each year. It is also not possible to make use of any unused contribution allowance from previous tax years to increase this amount.
You will be affected by this allowance when you:
- take any benefits flexibly from your pension
- exceed your income limit in capped drawdown
- take an income payment after you have told your scheme administrator you want to move from capped drawdown to flexi-access drawdown
- purchase a flexible annuity that allows income to decrease
- have previously been taking flexible drawdown (before 6 April)
You will not be affected by this allowance if you:
- take a tax-free lump sum but no other income
- continue to take income below your annual limit in capped drawdown
- purchase a traditional lifetime annuity
- take a lump sum or income as a beneficiary of someone else’s pension
The state pension has risen £2.85 which is always good news. The tax changes also made it easier to pass pension savings on to descendants. Existing annuity holders remain unaffected for the time being, however there are plans for them to be able to sell their annuity.
If you’re still having problems understanding pensions, then don’t worry, The Governments Pension Wise Service will be offering free guidance and advice for people.